UK Insurers Dip (AV, LGEN, ADM) as FCA Intensifies Scrutiny on Premiums and Claims Handling

The Financial Conduct Authority (FCA) is increasing its oversight of the UK insurance sector, addressing both the surge in motor insurance premiums and persistent issues in claims handling practices. This regulatory pressure could have an impact on major players like Aviva (AV), Legal & General (LGEN), and Admiral Group (ADM), with each of the three seeing shares dip on the day.

The FCA's recent analysis reveals that escalating motor insurance premiums are primarily driven by external cost pressures. These include higher prices for cars, parts, labor, energy, and increasingly complex supply chains. The rising costs of hire vehicles, theft claims, and uninsured drivers have further exacerbated the situation. This confirms that insurers' profits are not the primary driver of the premium increases.

However, the FCA has also identified significant shortcomings in how insurers handle claims. Key concerns include a lack of oversight of outsourced services, leading to poor customer outcomes and delays. Insufficient management information systems are also contributing to failures in promptly identifying and resolving claims issues. Alarmingly, only 32% of storm damage claims resulted in payment in a sample of firms in 2024, raising questions about claims processing fairness.

The regulator is directly addressing these issues with the firms involved and has stated it is prepared to take action against specific companies where necessary. The FCA is also collaborating with the government's motor insurance taskforce to explore coordinated actions aimed at mitigating the root causes of rising motor premiums.

In a parallel move, the FCA is scrutinizing the premium finance market, where consumers pay for insurance in monthly installments. Given that over 20 million people use premium finance, often with annual interest rates between 20% and 30%, the FCA is assessing whether these products provide fair value, particularly for vulnerable customers.

The study will examine customer awareness of financing options and the role of commissions. An interim report is expected by the end of 2025.

Sarah Pritchard, Deputy Chief Executive of the FCA, emphasized the need for fair treatment for consumers. She stated that while external cost pressures are primarily responsible for recent premium increases, more work is needed to improve claims handling, especially in the home and travel sectors.

The Financial Ombudsman Service has reported a significant increase in insurance complaints, highlighting growing consumer dissatisfaction. Common issues include repeated requests for paperwork and lack of communication from insurers. The FCA has warned insurers to improve their treatment of vulnerable customers and claims handling processes, emphasizing the need for timely and fair settlements.