Accurately assessing outcomes in Motor Total Loss settlements

In response to concerns about consumers being offered claim settlements lower than their car's fair market value, the FCA issued a press release in 2022 warning firms about potential breaches of rules and indicating readiness to act.

To assess the scale and extent of harm caused, the FCA surveyed 12 insurance firms, who make up an estimated 70% of the market, to assess firms’ claims-handling processes for valuing total-loss claims – focusing on how settlement amounts compared with initial guide valuations.

While the FCA acknowledges that the Consumer Duty wasn't in force during the period it reviewed, it has commented where it observed practices which may have fallen short of the requirements.

Core issues identified by the FCA

From the survey, the FCA identified several issues and concerns over MTL claims settlement. In summary, these are:

• Only using a single trade guide and / or only introducing a second guide when a customer rejected an initial valuation
• Treating the claims settlement process as a negotiation, for instance by providing customer facing teams with a range of settlement values
• Large numbers of initial offers being increased e.g. when customers complained
• The application of standard deductions, e.g. relating to prior total loss (“PTL”) or lack of MOT, which do not take the individual circumstances of the customer or vehicle into consideration
• The application of deductions for unusual or atypical reasons, e.g. low tyre tread
• Failure to gather MI and/or undertake analysis to understand why initial offers were being increased and whether there are differences in outcomes between customers who accept an initial offer and those who go through a revaluation
• Failure to analyse MTL related complaints

Timeline

• December 2022: FCA warns insurers not to undervalue MTL claims as it has seen evidence of firms doing this
• March 2024: FCA publishes findings of its multi-firm review into MTL claims settlements
• July 2024: We currently know of at least five Skilled Person Reviews being performed to investigate MTL settlement practices

What’s next?

In the first instance, firms should review the FCA’s findings and take steps to identify whether any of these observations apply to their business and, where applicable, assess whether they may have caused customer harm.

Such consideration shouldn't be limited to the motor insurance total-loss. We have previously seen the FCA seek to identify whether harms it has observed in one product are also prevalent in other products or sectors. As such, firms should assess whether these findings are applicable to other insurance products they offer.

There will be continued focus on fair value and good outcomes from the FCA as the Consumer Duty becomes further established. Firms should therefore appropriately consider claims outcomes and performance when undertaking fair value assessments.

Moving forward, they must ensure they consider their findings in detail, including examples of good practice and areas of improvement, including the Consumer Duty to address potential issues and meet best practice.

Case Study - Leading UK insurer

Skilled Person Review to oversee a MTL redress and remediation exercise.

Our experience and expertise

We know that each firm has unique challenges and requires a tailored approach; we focus on assessing firms against the concerns the FCA has raised and staying compliant.

We can support on all aspect of MTL, including:

• Reviewing your MTL settlement methodology to identify areas of potential concern
• Helping design appropriate MI to determine whether MTL claimants are receiving good outcomes
• Reviewing a sample of MTL settlements and provide recommendations for improvements
• Helping identify individual cohorts of customers who may be at higher risk of having had an unfair MTL settlement
• Advising on potential redress strategies for MTL claims that have been identified as being undervalued

To learn more about our approach and how we can support you, get in touch.