Financial Conduct Authority stumbles trying to ensure your insurer doesn't rip you off

Watchdog has published a lot of data designed to help us assess the value of insurance, but it's all rather confusing. The good thing about it? Insurers don't seem too happy

The FCA wants to help but might just have confused the issue on insurance (Reuters)

When the Financial Conduct Authority looked at the add ons and extras insurers try to sell alongside home insurance, it found consumers were getting a raw deal.

In the interests of bringing some daylight to bear on the issue, it agreed to publish a bunch of data so people could see what was going on with respect to claims, and hopefully, the value for money different companies offer.

Trouble is, now it’s out it’s hard to make much sense of it. We’ve been provided with numbers for frequency of claims, average payouts, the frequency with which claims are accepted, and the overall incidence of claims for a variety of comapnies.

Given what the data shows, I’d be rather wary about taking home insurance out with Legal & General, for example. Its claims acceptance rate looks poor at 85-87.4 per cent. And the average pay out of between £1000 and £1,499 might lead me to wonder whether its claims assessors turn the screw when someone is in the middle of a crisis. The claims frequency stands at 5-7.4 per cent.

I mention that because I then took a look at Aviva, which is a much bigger player in the home insurance market. Aviva compares quite favourably to L&G, accepting 90 - 92.4 per cent of claims and paying out between £3,000 and £3,499 on average. But the frequency of claims is rather lower at between 2.5 per cent and 4.9 per cent. Zurich Insurance’s numbers are exactly the same as Aviva's. Except it pays out between £2,000 and £2,499 on average. Does that make Aviva the best of the bunch? I’m not entirely sure.

It’s when you get to those add on policies that things get really odd. Take Aviva. Its personal accident insurance sold as an add on to home or motor insurance, hardly ever pays out (between 1 in 50,000 and 1 in 100,000 policies). But claims are accepted at a rate of between 90 and 100 per cent, with an average payout of between £40,000 and £45,000.

By contrast, Admiral Insurance Gibraltar pays out at a rate of between 1 in 100 and 1 in 250 policies. The acceptance rate is the same, but the average payout is between £500 and £999. The only conclusion to draw from those numbers is that these policies are probably very different.

The FCA says the data is primarily aimed at “consumer groups” and “market commentators” like me. It doesn’t expect you to study it. But you can if you want. So can insurance companies, which might compete harder as a result. However, some might also interpret the data to think they can get away with offering less.

Perhaps, and it’s just a thought, what we need is a bit more data from the FCA to give us a bit more context. And the bands need to go too. They confuse the issue.

However, one thing that does make me think that the data has some value is the response to it given by the Association of British Insurers.

James Anderson, who bears the august title of assistant director, head of conduct regulation, there said this: “Every day home insurers pay out over £8m in claims to customers, and are committed to doing all they can to ensure that insurance delivers when the worst happens.”

That’s irrelevant. Insurers are supposed to pay out on claims, Mr Anderson, and you shouldn't expect a pat on the back when your members do the job they're paid to do. We don’t sing hymns to Tesco purely for selling us food because that’s what Tesco is supposed to do.

But there’s more from Mr Anderson: “Our own claims analysis has highlighted some common areas of misunderstanding and we have published a home insurance guide to help consumers. Customers also need to ensure that they do not simply buy on price but make sure they have cover at the levels they need.”

Ah, I see. So it’s all on you, and woe betide you if you seek out value.

It’s responses like this that make me think the FCA is on to something. If the ABI doesn’t like it, then what the FCA has published must have something going for it.