MILLIONS of drivers could be entitled to compensation after their car insurer underpaid them.
A review of the 12 biggest car insurers by the City watchdog found some customers were being offered settlements worth less than their car’s value when making a claim.
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When drivers claim on their car insurance where their vehicle is written off or stolen, they should be offered a payout equivalent to the fair market value of their car.
This is the amount their car should have been worth at the time it was stolen or damaged.
But the watchdog, the Financial Conduct Authority (FCA), said it had seen evidence firms were offering customers less than their vehicles’ fair market value.
It looked at the 12 biggest car insurers, which it said make up around 70% of the total market.
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“Our review did not examine individual cases, but we consider these low average settlement figures indicate that some customers’ claims may have been handled unfairly,” the FCA said in its review findings today.
The regulator is now engaging with those car insurers to ensure they address the findings of its review and change their practices going forward.
However, customers who may have already been underpaid for past claims could be entitled to compensation.
Last year, car insurer Direct Line was ordered to reassess five years’ worth of claims and pay compensation to customers who had been underpaid.
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“Customers who think their claim may have been undervalued can complain to their insurer and then to the Financial Ombudsman Service (FOS) if their complaint is not resolved,” the FCA said.
What issues did the FCA find?
As part of its review, the regulator looked into how car insurers were coming to their final settlement values and found issues with their processes.
For example, it said it had seen evidence of car insurers deducting money off a payout for “wear and tear”, even though this should already have been reflected in the fair market value for a vehicle of that age.
It also said it found insurers were providing initial offers that were below the vehicle’s estimated market value with the expectation that they would only increase that value if the customer challenged it.
This meant customers who just agreed to take the initial offer weren’t getting the best value.
The FCA said firms knowingly making a settlement offer below the value the customer is entitled to is a breach of their regulatory requirements.
It also found some firms were attempting to dissuade drivers from challenging their valuation, for example by implying the FOS wouldn’t offer them anything different.
“If the firm says its vehicle valuation approach reflects the FOS’s approach, there is a risk that customers may believe there is no prospect of a valuation increase even if the FOS subsequently assesses their case,” the FCA explained.
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How do car insurers value a write-off?
If your car is written off or stolen, you can claim on your insurance policy to effectively replace your vehicle at its current market value.
This is the amount your vehicle would have been worth if you had sold it just before it was stolen or damaged beyond repair.
A car is deemed a write-off if the repair costs exceed a certain percentage of the total value of the car – often 50% to 70%.
When you make a claim, your car insurer will assess the damage and repair costs. If it writes the vehicle off, it will then offer a settlement after working out its rough market value.
Insurers may use trade guides as well as online auctions to work out this value.
If you accept an offer from your insurer, it will then pay this out to you, minus your excess payment for your insurance policy.
The excess is the amount you agree to pay out in the event of a claim when you take out a policy.
How to complain about your insurer
Insurers must have a formal complaints process and must tell customers how to make a complaint.
You should be able to find this information on their website, but if you can’t, ask them to send it to you.
Follow each stage of the process and share as much evidence as you can as this will help back up your case.
For example, if you feel you were misled at any point while making your claim, share a copy of the correspondence.
It’s worth making your complaint as soon as possible, as it’ll be easier to remember all the relevant details.
Once you’ve sent in your complaint, the firm must respond within eight weeks.
If you don’t get a response within eight weeks or you’re not happy with the one you do get, you can take your complaint to the FOS for free.
You do not need to use a claims management company to complain.
How to complain to the FOS
If you decide to complain to the FOS, you need to do so within six months of your provider’s final response.
You should have received a “deadlock letter” from the firm indicating you can’t reach an agreement.
To start a complaint, visit: financial-ombudsman.org.uk/make-complaint.
If you’d prefer to talk it through with someone, call 0800 023 4567.
When you get in touch, you’ll need to have the following details to hand:
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- Basic details like your name and address
- What your complaint relates to and how you feel you were treated unfairly
- The company name and policy number or account number that your complaint relates to
The FOS will then look at the evidence provided by both sides and, if it upholds your complaint, it will tell the firm how to put things right.
How to get cheap car insurance
CAR insurance is an essential cost that you hope to never use but will need to cover the costs of theft or damage to your vehicle.
It’s a legal requirement to have car insurance, and going without it could land you with a £300 fine, six penalty points on your licence and even a criminal conviction.
But there are several ways to slash your premiums.
Pay upfront
Insurers give you the choice of paying for insurance monthly or upfront.
Paying monthly spreads the cost of your cover but the insurer adds interest charges which means the average motorist pays around ten per cent more overall.
If you pay for your car insurance annually you don’t pay any interest.
A typical motorist can save up to £225 a year by paying in one go, according to comparison site MoneySuperMarket.
Increase your excess
The excess is what you agree to pay each time you need to make a claim on your policy.
You can usually choose your own excess when setting up a policy and it can be as low as £100 and as high as £500 or more.
The higher your excess, the lower your premium and vice versa.
This means you could bring the cost of your insurance down by agreeing to pay more if you do need to make a claim.
But before you hike your excess, make sure you would be able to pay in the event that you do need to make a claim.
Tweak your job
Certain jobs are seen as more risky than others for insurance purposes.
Making small but accurate changes to your job title can save you money.
For example, swapping your role from “chef” to “caterer” can save you £20, comparison site GoCompare found.
And changing your role from “fast food delivery driver” to “delivery driver” could save you £40.
But lying about your job could invalidate your policy so make sure any changes are legitimate and accurate.
Shop around
Not all comparison sites have the same range of insurers so to get the best price it’s a good idea to check two or three from Go Compare, Comparethemarket, MoneySupermarket and Confused.com.
Insurer Direct Line is also not on comparison sites so check its prices directly.
You can also get a free cash bonus by going via a cashback site such as Topcashback or Quidco.
Save the date
Renewing your car insurance sooner rather than later could save you some cash.
New cover becomes more expensive the closer you get to the renewal date.
But you can buy your car insurance up to 29 days before the policy start date and ‘lock in’ the price you’re quoted on that day.
A typical driver can save up to £265 buying new cover at least 27 days before their current policy ends, according to Go Compare.
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