FCA outlines how insurers must up their claims game

Speaking in an exclusive interview for the Insurance Post Podcast, due to be released on 20 May, Graeme Reynolds, director of competition and interim director of insurance at the FCA, said the regulator was investigating why some products continued to generate lower claims acceptance rates and poorer customer experiences.

The Which? super-complaint, submitted in September 2025, raised concerns about high claims rejection rates in home and travel insurance, a lack of transparency around cover, and whether consumers fully understood exclusions and policy terms.

Insurance gives absolutely vital protection for consumers when things go wrong. Many people have experiences where they make claims that haven’t been up to the standards they and we would like to see.

Graeme Reynolds, FCA

Reynolds said: “One of the things that is really important around insurance is that it gives absolutely vital protection for consumers when things go wrong. Many people have been experiencing experiences when they make claims that haven’t been up to the standards they and we would like to see in the sector.

“The Which super-complaint set out where some of the areas were and chimed with some of the previous analysis we had done around home and travel insurance.”

He said the FCA had identified lower claims acceptance rates in home and travel products compared with other lines of business, although some of this could reflect the nature of the risks covered.

“What we found is home and travel insurance continue to show lower claims acceptance rates compared to other insurance products,” Reynolds said.

“There are potentially some good reasons why that might be the case in those areas, particularly given the nature of the perils those types of insurance products cover, but we think there are a number of aspects at play that need further investigation and improvement by the sector.”

Reynolds said the regulator identified three main areas of concern: weak consumer understanding of policy cover, inadequate oversight of outsourced claims operations, and shortcomings in firms’ internal controls and monitoring processes.

“The factors we have picked out are firstly, lower consumer understanding of what individual policies cover, secondly, from the firm’s perspective, weak oversight of outsourced claims that can sometimes lead to inadequate monitoring of management information and then those claims not being handled in the way we would want to see them handled,” he said.

“Thirdly, the questions over internal controls that are sometimes lacking in firms, which means there is not the right interrogation of data and oversight of things like cash settlements.”

Improvements needed

Reynolds shared the FCA is now focusing on three areas for improvement across the market: helping consumers better understand policy terms, ensuring claims are handled promptly and fairly, and strengthening firms’ monitoring of customer outcomes under Consumer Duty requirements.

“We are looking for three types of improvements from firms,” Reynolds said.

“Number one is really improving consumer understanding. We’ve got a working group set-up to try and tackle that. Being clear what is covered and testing consumers genuinely understand the terms of their insurance.

“Second, claims handling. We want to see those claims handled promptly, fairly and transparently, delivering good outcomes for consumers when they make those claims.

“Thirdly, on monitoring, really making sure firms are assessing whether products and services are delivering good outcomes.”

The regulator is also examining whether claims outcomes differ depending on how policies are sold, including whether certain distribution channels contribute to poorer customer understanding and lower claims acceptance rates.

Reynolds said: “For example, do we see lower claims acceptance rates when it goes through one sales channel or another because that is linked to a lack of consumer understanding in those particular areas?”

Delegated authority arrangements and remuneration structures linked to outsourced claims handling are also under review.

Reynolds said the FCA was seeking to “really get to the heart of where those issues are arising and take right and appropriate action in the circumstances”.

Industry action

During the podcast, the Association of British Insurers and British Insurance Brokers’ Association also outlined work underway with the FCA to improve customer understanding of insurance products, financial inclusion and transparency around underwriting decisions.

David Otudeko, director of regulation at the ABI, said: “There is a desire, within the sector, to help consumers understand the products, particularly around the point where they need to make claims because that is really where the rubber hits the road.

“It is helping people understand why they need the products, what individual products cover and what processes they need to follow when they make a claim.”

The Insurance Post Podcast episode focusing on the FCA’s priorities for insurance will be available to listen to on 20 May.