FCA Crackdown Exposes Widespread Unfair Write-Off Payouts as Cash-Strapped Drivers Face Insurance “Rip-Off”

Unfair Write-offs – Regulator findings reveal systematic undervaluation of written-off vehicles, leaving consumers short-changed when they need insurance most

The motor insurance industry faces mounting regulatory pressure as the Financial Conduct Authority (FCA) exposes widespread practices that leave cash-strapped consumers paying premium prices for substandard service. Recent findings reveal that many policyholders are not receiving fair compensation for their vehicles following write-offs due to accident or theft, with some insurers systematically undervaluing cars to reduce payouts.

The regulatory spotlight intensifies as 170,000 consumers signed the ‘Which?’ petition in May 2025 demanding action against ‘rip-off’ insurance practices, highlighting growing consumer frustration with an industry that appears to prioritise profits over fair treatment.

The Pay Monthly Consumers hit by Premium Penalties

FCA analysis reveals a troubling picture of financial discrimination within the motor insurance sector. In 2024, 60% of motor insurance policyholders who paid by monthly instalments did so because they couldn’t afford a single yearly lump sum payment. These potentially financially vulnerable customers face a double penalty, paying typically 8% to 11% more for their insurance compared to those who can afford annual payments.

This premium penalty particularly impacts those with limited financial resilience, creating a system where those who can least afford it pay the most for essential cover—only to potentially face unfair treatment when making claims. The regulator has uncovered that firms are profiting from premium finance. Premium finance allows customers to spread costs, making them affordable and providing flexibility. Their findings show that “some firms earn much more money than it costs to provide it.”[^7]

Systematic Problems with Total Loss Claims

The FCA’s investigation has uncovered concerning practices around vehicle valuations when cars are declared total losses. While insurers are required to pay policyholders an amount reflecting the market value of their vehicle just before it was written off, evidence suggests some insurers are deliberately undervaluing vehicles, resulting in unfair write-off payouts that leave consumers significantly out of pocket.

The scale of the problem has prompted regulatory intervention across the industry. In response to the ‘Which?’ petition with 170,000 signatures, Nikhil Rathi, Chief Executive of the FCA, explained: “We reviewed firms’ practices after seeing evidence that some consumers were being offered lower settlements than their vehicle’s market value when it was written off. This led to us asking firms representing 70% of the market to carry out reviews and, where needed, to provide consumers with redress.”[^3]

Growing Number of Undervalued Insurance Settlement Disputes

Despite regulatory pressure, many consumers report they have not heard from their insurance companies regarding potential redress or compensation for undervalued vehicles. Instead, increasing numbers are taking matters into their own hands by pursuing car write-off claims for compensation against insurers who have provided unfair settlements.

The Financial Ombudsman Service, responsible for impartially resolving insurance disputes, has reported a significant increase in consumers contacting them due to dissatisfaction with payout amounts following insurance claims[^4]. This surge in complaints suggests the problem of undervalued insurance settlements extends far beyond isolated cases.

Market Pressures Cannot Excuse Unfair Write-off Practices

Rising vehicle values have undoubtedly created financial pressures for insurers. Car prices have increased dramatically in recent years[^5], with the average insured vehicle value rising 42% from £9,319 in 2019 to £13,223 in 2023—double the rate of general inflation over the same period.

However, regulatory authorities maintain that market pressures cannot justify unfair treatment of policyholders making legitimate total loss claims. Sheldon Mills, Executive Director at the FCA, emphasised the importance of fair settlements, particularly given current economic pressures:

“When making an insurance claim, people shouldn’t need to question whether they are being offered the right amount for their written off car… 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.”[^6]

Consumer Rights and Next Steps

The FCA’s findings highlight a clear pattern of industry practices that disadvantage consumers at their most vulnerable moments. With evidence of systematic problems in vehicle valuations and settlement offers, consumers who believe they have received an unfair write-off payout may have grounds for pursuing compensation through formal complaint procedures or specialist claims services.

The regulatory crackdown serves as a reminder that consumers have rights when it comes to insurance settlements, and that undervalued insurance settlements should not be accepted without challenge. As the industry faces continued scrutiny, the message is clear: fair treatment and accurate valuations are not optional extras but fundamental obligations that insurers must fulfil.

“It’s long overdue for the regulator to scrutinise the insurance industry. We all remember the Payment Protection Insurance (PPI) scandal – but that centred on lenders mis-selling policies, rather than putting insurance companies themselves under the spotlight. Now, insurers are finally being challenged on whether they provide value for money and fairness – which I’m sure will be welcomed by consumers, especially if it delivers justice for those who’ve been misled or shortchanged.” Stephen Griffiths – Head of Product – Allegiant Finance Services

[^1]: “In 2024 60% of motor and 41% of home (buildings and contents combined) policyholders who paid by instalments did so because they could not afford to pay in a single annual payment. Many of these customers also have a wide range of characteristics that suggest low levels of financial resilience”… “Around 60% of consumers pay headline APRs that are between 20 and 30%. This would cost an extra £19-28 on an illustrative home policy (with a premium of around £220 and standard rate Insurance Premium Tax (IPT) of 12%) and £35-£51 on an illustrative motor policy (with a premium of around £400 and standard rate IPT of 12%). This suggests it costs consumers typically between 8 and 11% more to pay monthly rather than annually.” ms24-2-2-premium-finance-market-study-update-paper.pdf
[^2]: Which? urges regulator to take decisive action on ‘rip-off’ insurance – Which?
[^3]: Letter from Nikhil Rathi to Anabel Hoult CEO of Which?
[^4]: “We’ve also seen an increase in consumers contacting us because they were unhappy with the value or amount of the payout received following an insurance claim.” Annual complaints data and insight 2023/24 — Financial Ombudsman service
[^5]: “The prices of new and used cars increased significantly, with the Office for National Statistics CPI index for new cars rising from 112.2 in 2019 to 132.6 in 2023 and for second hand cars from 93.3 in 2019 to 118.9 in 2023. The average insured vehicle value, for our sampled firms, increased 42% from £9,319 in 2019 to £13,223 in 2023, double CPI inflation of 21% over the same period.” Motor Insurance Claims Analysis – multi-firm review
[^6]: Insurance providers warned not to undervalue cars or other insured items when settling claims | FCA
[^7] https://www.fca.org.uk/news/press-releases/premium-hikes-driven-claims-costs-insurers-told-improve-claims-handling