Insurers accused of shortchanging customers by undervaluing cars

Drivers making a car insurance claim are regularly being offered less than their vehicle’s market value, the City watchdog has warned, as it clamps down on poor practice in the sector.

The Financial Conduct Authority said it had seen evidence providers had only raised their offers to a fair market price after receiving a complaint from the driver.

It said rising prices had likely put pressure on insurers to control costs by making offers lower than the customer is entitled to under the policy. But the regulator branded this tactic unfair, warning that it was “likely to disproportionately affect consumers in vulnerable circumstances”.

Vehicle finance expert Graham Hill said providers were trying to avoid large payouts to keep customer premiums low. “Insurance companies are no different to any other business, namely they have one eye on their bottom line and the other on customer retention. But with the emergence of comparison sites, the focus tends to be more on their bottom line,” he said.

Mr Hill urged drivers to check sites such as Auto Trader to verify a car’s average retail value. He added: “Always believe that the insurance company is trying to pull the wool over your eyes and never ever accept the first offer of settlement.”

Drivers who believe their insurers have undervalued their car can complain directly to their provider. Those whose complaints remained unresolved can refer their case to the Financial Ombudsman Service.

Many motorists have already made successful claims against their insurer. In July, the ombudsman ruled one insurer had undervalued a driver’s car by more than £20,000. The insurer had initially valued the driver’s car at £14,800, which was later bumped up to £37,500 after the ombudsman ruled the insurer had not taken into account the model’s rarity.

In another case it ordered an insurer to increase its valuation of a written-off car from £31,250 to £32,864 after a driver complained it had been undervalued following an accident in January.

Jenny Ross, of consumer champion Which?, said insurers should be “appropriately punished” for such practices. She said: “Insurance customers shouldn’t have to complain just to get a fair deal from their insurer – especially at a time when the cost of living crisis is squeezing millions of household budgets.”

Sheldon Mills, of the FCA, said it would be “watching the behaviour of firms closely and will act quickly to prevent harm to consumers”. 

He added: “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.”

The Association of British Insurers trade body said: “At a time when household budgets are increasingly under pressure, insurers are doing all they can to support customers. Our members have processes in place to determine a fair market value for a written-off car but we agree it’s important that policyholders trust the offer they receive. 

“We’ll discuss this with our members to understand how processes are kept under review, including the information provided to customers to understand the different settlement options available to them, particularly given fluctuations in second-hand car prices.”