"The industry and the FCA need to speed up and improve their efforts to help people better understand home and travel insurance."
- Baroness Noakes DBE
The report 'Home and travel insurance regulation: more for the FCA to do', published by the cross-party House of Lords Financial Services Regulation Committee, has revealed its findings.
According to the report, home and travel insurance products have low claims acceptance rates relative to other retail insurance products, and customer understanding remains low, with Consumer Duty not yet translating into improvements.
Furthermore, the report states that while the price-led competition in the UK market driven by comparison websites has helped consumers find affordable insurance products, it has also led to a focus on price rather than overall product value, and that there is a lack of readily available and comparable data on elements of product value other than price.
As a result, consumers and price comparison sites are prevented from being able to compare product value effectively, especially data on claims outcomes.
The report notes that the result of poor consumer understanding often only becomes clear when a claim is made, as products purchased on price rather than levels of coverage, combined with poor understanding of what is and is not covered, contribute to persistently high rates of claims being declined.
The FCA has acknowledged the need for further work on claims-handling practices which carry a higher risk of consumer harm, including outsourced claims handling and cash settlements. However, the report adds that overall, the FCA has a number of actions in train, but the timetables for completion are not clear.
It also flags the growing use of AI by consumers to research home and travel insurance which is not regulated by the FCA as a concern. This comes after FCA board member Jessica Rusu called for "clear, proportionate and consistent disclaimers" on AI-generated financial advice earlier this week. On the same day, the FCA published a new paper, 'AI in financial services: good practice and areas for improvement'.
Accelerating work on claims practices and understanding
The report also lists a number of recommendations for the FCA, including a call to accelerate work on improving poor consumer understanding of home and travel insurance products, with a focus on what policies do and do not cover.
Additionally, it calls on the FCA to outline how it will address poor claims handling practices, and to further examine what it can do to make consumers aware of the potential problems in relying on AI to make insurance purchasing decisions.
It adds that the FCA should step in to ensure comparable outcomes data is widely available, in the absence of the industry agreeing on comparable metrics, and that the FCA needs to develop how it measures the impact of Consumer Duty to improve consumer outcomes.
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"Comparison websites have made it easier for people to find cheaper insurance but the lack of good data on other aspects of product value means that many home and travel policies are chosen on price alone," Baroness Noakes DBE, chairman of the House of Lords Financial Services Regulation Committee, said.
"The industry and the FCA need to speed up and improve their efforts to help people better understand home and travel insurance, especially what their policies do and do not cover.
"It is concerning that many of these problems around consumer understanding and comparable data are well-known among industry and the FCA, but that significant progress has not yet been made.
"We know that the FCA is undertaking various pieces of work to make progress on many of the issues our report has highlighted, but the timescales are not clear, and it should produce a roadmap of what it is doing."
