Today, the cross-party House of Lords Financial Services
Regulation Committee has published its report, Home and travel
insurance regulation: more for the FCA to do'.
The report found that:
- Home and travel insurance products have low claims acceptance
rates relative to other retail insurance products. They are
inherently complex and consumer understanding is low despite the
requirement under the Financial Conduct Authority's (FCA)
Consumer Duty for firms to support consumer understanding.
- Price comparison websites have driven intense price-led
competition in the UK market. This has helped consumers find
affordable insurance products. However, it has led to a focus on
price rather than overall product value.
- There is a lack of readily available and comparable data on
elements of product value other than price. Not only does this
inhibit the ability of consumers to compare products, it also
prevents price comparison websites from being able to compare
product value effectively, especially data on claims outcomes.
- The result of poor consumer understanding often becomes clear
only when a claim is made. Products purchased on price rather
than levels of coverage, and a lack of understanding about what
is and is not covered by insurance, both contribute to
persistently high rates of claims being declined.
- Claims experiences can vary significantly, and the FCA has
acknowledged the need for further work on claims-handling
practices which carry a higher risk of consumer harm, including
outsourced claims handling and cash settlements.
- There are concerns about the growing use of AI by consumers
to research home and travel insurance which is not regulated by
the FCA.
- The Consumer Duty has not yet translated into improvements
for consumers. Clear expectations and robust outcomes data are
key to the success of the consumer duty.
- The FCA has a number of actions in train, but the timetables
for completion are not clear.
The report recommends that:
- The industry and the FCA must accelerate their work on
improving poor consumer understanding of home and travel
insurance products, particularly what is and is not covered by
policies.
- The FCA must outline how it will address poor claims handling
practices.
- The FCA should look at what it can do to make consumers aware
of the potential problems in relying on AI in making insurance
purchasing decisions.
- In the absence of the industry agreeing on comparable
metrics, the FCA should step in to ensure that comparable
outcomes data is widely available. Moreover, the FCA needs to
develop how it measures the impact of the Consumer Duty in order
to realise its potential to improve consumer outcomes.
- The FCA is pursuing many of the issues outlined, but the
timetables for completion are unclear. The FCA should produce a
roadmap with clear timescales for delivery.
The DBE, Chairman of the House
of Lords Financial Services Regulation Committee, said:
Comparison websites have made it easier for people to find
cheaper insurance but the lack of good data on other aspects of
product value means that many home and travel policies are chosen
on price alone.
The industry and the FCA need to speed up and improve their
efforts to help people better understand home and travel
insurance, especially what their policies do and do not cover. It
is concerning that many of these problems around consumer
understanding and comparable data are well-known among industry
and the FCA, but that significant progress has not yet been made.
We know that the FCA is undertaking various pieces of work to
make progress on many of the issues our report has highlighted,
but the timescales are not clear, and it should produce a roadmap
of what it is doing.
