Motor insurers have changed how they settle claims after the Financial Conduct Authority (FCA) found some customers were underpaid on stolen or written-off vehicle claims, leading to what the regulator described as “unfair payouts”.

An estimated 270,000 motorists are now expected to receive £200 million in compensation for historic claims that breached rules on handling claims fairly. According to the FCA, £129 million has already been paid to almost 150,000 customers, with a further £71 million due to 120,000 motorists.

Sarah Pritchard, the FCA’s deputy chief executive, said the watchdog was “pleased to see that the practices which led to some unfair payouts have already changed” and stressed: “If you’re owed compensation, your insurer will contact you, or will have already done so – there’s nothing you need to do.”

The regulator’s intervention followed an initial review last year which found some insurers made automatic deductions from payouts for assumed pre-existing damage. This particularly penalised careful drivers and, in some cases, made it difficult for customers to buy like-for-like replacements. Insurers have now overhauled their claims processes in line with the FCA’s new Consumer Duty, which requires firms to deliver good outcomes for retail consumers.

Cormac Bradley, Senior Actuarial Director at consultancy Broadstone, said the announcement meant “hundreds of thousands of drivers” would receive redress. He added that the FCA had highlighted how assumed wear-and-tear deductions may have “unfairly penalised careful drivers” and noted that higher numbers of cash settlements and volatile car prices made valuations “no small challenge”.

Regulatory backdrop

The FCA has been warning insurers about vehicle valuations since December 2022, when it set out expectations on settling claims fairly and not undervaluing insured items. In March 2024 it published a multi-firm review of 12 insurers, engaging with a further six firms covering about 90% of the market. This work identified shortcomings in valuation methods and led to direct engagement with firms.

The regulator also used a Voluntary Requirement (VREQ) in June 2023 to compel Direct Line Group to review five years of claims outcomes and pay redress where appropriate. That requirement has now been removed after the redress programme concluded. In August 2025, Admiral set aside £50 million to compensate customers who were not given fair settlements on stolen or written-off cars.

The FCA’s wider agenda on fair value includes pausing sales of Guaranteed Asset Protection (GAP) insurance over commission concerns, banning “price walking” at renewal, reviewing premium finance and claims handling in home and travel insurance, and scrutinising whether the pure protection market offers fair value.

GAP Insurance: FCA and industry at odds over fair value claims