MorganAsh comments on Which? report calling for FCA to crack down on insurers

Which? calls on Financial Conduct Authority to crack down on insurers, as new report uncovers widespread and shocking claims handling failures 

Insurance companies are causing significant harm to consumers during the claims process, a new Which? report has found.

The consumer champion today launches a new campaign to end the insurance rip-off - and calls on the Financial Conduct Authority (FCA) to take tough action against firms that fall short of the regulator’s required standards.

Which?’s in-depth analysis of the claims handling process found that almost half (48%) of all people making a claim about home, travel, motor and pet insurance experienced at least one problem in their claim journey.

These problems included having to repeatedly chase insurers for information on their case and insurers not identifying and responding appropriately when people were struggling as a result of the incident that led to their claim. Where insurers brought in third parties to deal with claims, these problems were particularly acute.

Some customers felt harassed for difficult to obtain information about seriously ill or deceased family members before being told the records were not necessary after all, while one woman developed asthma when she was forced to live in a mould-ridden home while her claim dragged on for months. Concerningly, the research found that insurers are failing in their requirements to their most vulnerable customers.

Claimants surveyed that had been severely impacted by the event they were claiming for were far more likely to report problems in the claims process than those who had not - 63% versus 33%. These claimants were also three times more likely (30%) to rate their provider as poor at considering and accounting for any challenges they were facing at the time of making the claim than those who were not severely impacted (9%).

In one particularly shocking case, an insurer asked a customer, Tara*, who had recently been made a widow, where her husband was when she called about their joint policy, despite the firm knowing of his death. Tara’s home had been burgled shortly after her husband’s death and items with sentimental value were stolen. Instead of her insurer showing compassion in a traumatic situation, it showed little empathy, failing to record her bereavement and asking inappropriate questions.

How well insurers dealt with the claim had a knock-on effect on customers’ ability to do other things, with over a quarter (28%) of respondents saying insurers’ poor handling of claims affected this.

The research also found that insurers’ behaviour had a direct impact on customers’ physical and mental health. Nearly a third (31%) said insurers’ actions negatively impacted their stress levels, while one in 10 had sleep issues and another one in 10 said the claims process affected their physical health.

This was the case for one interviewee the consumer champion spoke to, Diane*, from Radlett in Hertfordshire. She was badly let down by her insurance companies Hiscox and Ark Insurance after a room in her home was made uninhabitable due to water damage from a leak. Diane was covered for contents and buildings with two different insurers when she started to claim to fix the leak and replace her damaged belongings.

However, the process quickly became protracted and repetitive as she was asked to deal with a separate third party claims handler - and the representative it promised to send to assess her home was not dispatched to the home.

The third party claims handler’s delays in the process caused Diane and her family stress, but also meant that the mould spores in her home were getting worse and triggered a respiratory infection and asthma. The third-party assessor eventually dispatched to the house was shocked at the conditions Diane's family were living in and took immediate remedial action to prevent further harm.

Diane said: "I spent Christmas with a hole in the ceiling and had to cancel social arrangements. At the time, prices had hiked up for fuel and I was dealing with a draughty home. If the insurer had come out immediately, the claim would have been for far less money. Instead, the process went on for around six months. I feel disgusted. I'm an asthma sufferer now, which I wasn't before."

Insurers that use third party companies are required by the regulator to consider how this can impact their customers and the regulator identifies this as a key risk that can cause consumer harm.

Diane’s buildings insurance provider Ark Insurance declined to comment.

A spokesperson for Hiscox told Which? that “providing our customers with a straightforward and stress-free claims experience is really important to us, and we continue to invest in people and processes with customers at their core.”

In another example, Louise, from Walsall, cancelled a family holiday to Spain last year after her father-in-law had a stroke. After Louise contacted her insurer AXA Partners she was asked to upload relevant claim documents to the online portal. But after doing so, she was repeatedly asked to upload the documents again, despite receiving email notifications to say they had been received.

This process lasted several weeks, with Louise sending the same documents over and over again, including a medical form for her father-in-law. Louise phoned the AXA Partners customer service team on numerous occasions and estimates that she spoke to around ten different advisers throughout the insurance claim process.

Louise said: "I felt incompetent due to AXA's incompetence. I have dyslexia and kept questioning myself. I checked that I had sent all the documents. It felt as though they had everything but didn't want to pay out. The majority of the call centre staff I spoke to did not seem interested. I probably would have caved and given up if I didn't have a travel industry background. I also had the support of my family. I wouldn't have coped otherwise. The customer service was shocking. I will never use AXA again."

A spokesperson for AXA Partners told Which? it was ‘sorry for the issues Louise experienced’ and acknowledged that on this occasion ‘the service we provided did not meet the high standards we aim to achieve’.

Insurers have been bound by the FCA’s Consumer Duty since July 2023 which clearly set out requirements for firms to follow to deliver good outcomes for their customers.

However, the regulator has long standing requirements and guidance on the consumer outcomes that insurers should be providing when handling insurance claims - many of which predate the Consumer Duty.

The FCA has made clear that insurers should have already been meeting many parts of the Duty based on existing requirements, and that it was a less significant change than for other parts of the financial services sector.

The regulator plans to review how the insurance sector handles claims as well as how all financial services firms treat customers in vulnerable circumstances.

The consumer champion believes these reviews will mark a big test of the Consumer Duty, given its worrying findings that firms are failing to consistently meet its requirements for customers in vulnerable circumstances. These customers should experience outcomes as good as those for other consumers and are failing to properly mitigate the risk of harm caused by outsourcing to third parties. The regulator must take tough action against insurers that consistently fail to meet the required standards.

The consumer champion’s campaign to end the insurance rip-off is also calling for the regulator to clamp down on car and home insurers charging customers who can only afford to pay for cover monthly and face excessively high interest rates on payments as a result.

Rocio Concha, Which? Director of Policy and Advocacy, said:

“This research paints a shocking picture of insurers’ failure to handle customers’ claims in a timely, empathetic way - and it’s particularly concerning to see how people in vulnerable circumstances due to the event that led to their claim are being failed by their insurers.

“At a time when many consumers face soaring premiums, it’s clear they’re being ripped off - either by abysmal claims handling that doesn’t match up to the price they’re paying, or by unjustifiably high premiums, especially for those who can’t afford to pay for a year’s cover in one go.

“Today, we say enough is enough. The rules for insurers are clear, but the insurance rip-off will not end unless the regulator takes meaningful action against firms that consistently fall short.”

Published: 23 July 2024