Insurance firms have been warned not to undervalue cars when settling insurance claims and are being “watched closely” by the Financial Conduct Authority (FCA).
The FCA said some consumers who have had their cars written off after an accident were offered a price lower than the vehicle’s fair market value.
In some cases, claims staff are only increasing that offer to the fair market price when a consumer complains.
Offering a price lower than fair market value is not allowed under FCA rules. The FCA said it is acting against those firms that it has found breaking its rules.
Sheldon Mills, executive director, Consumers and Competition at the FCA, said: “When making an insurance claim, people shouldn’t need to question whether they are being offered the right amount for their written off car or other goods that they need to replace.
“Insurance firms should offer settlements at the fair market value. This is especially important now as people struggling with the cost of living will be hit in the pocket at precisely the time they can ill afford it.
“We are watching the behaviour of firms closely and will act quickly to stop firms and prevent harm to consumers where we see it.”
The FCA set out in a Dear CEO letter in September 2022 that it expects firms to handle claims promptly and fairly, and they should consider the impact of inflation when they cash settle claims and the likely difference in price for a consumer to replace an item or carry out repairs compared to a firm.
It also warned firms against offering unnecessary products or add-ons and unfair penalties during the cost-of-living crisis.
The financial services watchdog said that pressure on household bills might prompt some consumers to cut-back on insurance products, leaving them without protection against further unexpected costs.
Attempts to control claims costs by making offers lower than the customer is entitled to under the policy is unfair, according to the FCA, and is likely to disproportionately affect consumers in vulnerable circumstances.
Customers who think their claim may have been undervalued are advised to complain to their insurer and then to the Financial Ombudsman if their complaint is not resolved.
Earlier this year car insurance providers were banned from quoting customers a higher price for renewing their motor and home insurance than they would pay if they were a new customer as part of new legislation introduced by the FCA.