As the FCA issues a stark warning to insurers over undervaluing written-off cars, Katy Ward explains your rights if your provider isn’t playing fair.
Millions of Brits could have been underpaid by their insurance company when their car was stolen or written off, according to a new warning from the financial watchdog.
Following an investigation into 12 of the biggest insurers, the Financial Conduct Authority (FCA) found that some firms are offering motorists a settlement for less than their stolen or damaged car was worth.
Although it didn’t name these providers, the watchdog did reveal that they make up an estimated 70% of the UK market.
Crucially, the FCA also found that, in some cases, insurers are only increasing their offer when the customer makes a complaint.
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A history of scandal
Worryingly, this isn’t the first time the watchdog has raised concerns over shady practices within the industry and the FCA released a similar warning back in 2022.
Last year, it also ordered Direct Line to look back at five years’ worth of claims and compensate any motorists who had been underpaid.
In this article, we look at your rights if your car is written off and how to fight back if you believe you’ve been mistreated.
What happens if your car is written off?
A car is deemed a write-off when an insurer determines that it is no longer roadworthy and the cost of making repairs isn’t financially viable.
In this situation, your insurer should offer you a settlement that reflects your car’s market value (i.e, the amount it was worth immediately before it sustained the damage or was stolen).
Be aware, you’ll also need to pay any excess you’ve agreed on your policy before you receive your payout.
Your insurer will typically determine the value of your car by consulting vehicle reference guides, which contain a valuation based on your car’s age, make and model. This is known as the ‘book' value or ‘guide’ value.
Insurers may also consult auction websites to check sale prices for similar vehicles.
When a car is declared a write-off, it will usually be retained by your insurer and the company will become the legal owner.
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What the FCA uncovered
As part of its investigation, the FCA found that some providers are offering typical settlement valuations below the average guide value.
On top of this, it reported that many firms were making unreasonable deductions from the vehicle valuation.
This includes deducting for wear and tear when this has already been factored into the guide price.
In one of the FCA’s more worrying findings, the research concluded that some insurers are deliberately undervaluing vehicles in anticipation that motorists will dispute this initial offer.
According to the FCA report: “Their [insurers’] expectation was that they would then increase the offer if the customer challenged the original one or complained, even if the customer provided no additional information.”
In other words, customers who don’t push back against their initial offer are more likely to be ripped off.
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The rules for insurers
Any insurer that knowingly underpays a customer for a written-off car is likely to have broken its regulatory rules over treating customers fairly.
A breach of these regulatory requirements can result in enforcement action from the FCA, including fines.
As the regulator points out, the practice of deliberately making low initial offers could be especially harmful for vulnerable customers who may lack the financial knowledge to fight back.
How to complain about a car insurer
If you’re unhappy with your provider (for whatever reason), you should first contact the company directly to raise your concerns.
All insurers are legally required to have a formal process for handling complaints, which should be clearly outlined on its websites.
With minor issues, you may be able to address the problem with a phone call or email.
Remember, it’s a good idea to keep a record of the person you spoke to and the time of your call.
Put your complaint in writing
If the issue is more serious, it’s sensible to make a formal complaint in writing.
As well as your name and policy number, you should try to include as much evidence as possible to support your complaint.
Your letter should also include an expectation over how you would like the matter to be resolved.
Also, make it clear that you’re prepared to complain to the Financial Ombudsman Service (FOS) if you’re not happy with the insurer’s response.
Your insurer will then have a maximum of eight weeks to provide a formal written response to your complaint.
In instances where your insurer upholds your complaint, it should explain how it intends to fix the issue.
If your insurer doesn’t uphold your complaint, it must give you a clear explanation for its decision.
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How to complain to the Ombudsman
If you’re unable to reach an agreement with your insurer, the next step could be to take the matter to the Ombudsman.
Be aware that you’ll need to lodge your complaint with the FOS within six months of receiving your insurer’s formal response.
If your complaint relates to a written-off vehicle, the FOS may ask you and your insurer for additional information relating to your claim, including copies of previous valuations and details of any modifications.
Likewise, you may also need to provide independent reports from engineers or experts.
Can the Ombudsman award you compensation?
If the FOS agrees with your complaint, it can force your insurer to put things right, which includes compensating you for any losses.
With an undervalued vehicle, the Ombudsman can instruct your provider to increase the amount of your compensation. In some cases, it may also add interest to the amount you are owed.
In extreme cases, the FOS has the power to award up to £430,000.
Useful resources
If you would like more information about how you can make a complaint against your insurance company, there are plenty of online resources that can help. This includes:
The Financial Ombudsman Service
The Financial Conduct Authority