An estimated 270,000 motorists will receive £200 million in compensation after the Financial Conduct Authority found insurers had short-changed customers on vehicle claims. The regulator discovered that some insurers made unfair deductions when paying out for stolen or written-off cars.
Of the total compensation package, £129 million has already been distributed to nearly 150,000 customers for historic claims. The FCA conducted detailed investigations with insurance companies following an initial review that revealed systematic problems with claim settlements.
Problem with automatic deductions
The core issue involved insurers making automatic deductions from payouts based on assumed pre-existing damage to vehicles. This practice particularly disadvantaged careful drivers who had properly maintained their cars, making it difficult for them to purchase like-for-like replacement vehicles.
The unfair deductions meant that responsible motorists who had looked after their vehicles received less compensation than their cars were actually worth. This created a significant gap between the settlement amount and the true market value of well-maintained vehicles.
Regulatory response and changes
Insurers have now completely overhauled their claims processes to comply with the FCA's Consumer Duty requirements. The new standards ensure fairer treatment of customers when settling vehicle insurance claims.
Sarah Pritchard, deputy chief executive of the FCA, said: "We'll step in when consumers aren't getting fair value - and we are pleased to see that the practices which led to some unfair payouts have already changed. This means thousands of motorists are getting back what their car was really worth, in cases where cars have been stolen or written off. If you're owed compensation, your insurer will contact you, or will have already done so - there's nothing you need to do."
Next steps for affected customers
Customers who are owed compensation will be contacted directly by their insurance companies. The FCA emphasised that motorists do not need to take any action themselves, as insurers will reach out proactively.
For anyone dissatisfied with how their claim was handled, the regulator recommends first speaking to their insurer before contacting the Financial Ombudsman Service if the response proves unsatisfactory. The FCA also warned that customers do not need to use claims management companies to pursue complaints or make claims.
Background regulatory action
The compensation programme follows sustained FCA action on vehicle valuations since December 2022, when the regulator warned insurers against undervaluing cars and other insured items. In August 2025, Admiral announced it had set aside £50 million specifically to compensate customers who received unfair settlements for stolen or written-off vehicles.
Sources used: "PA Media" Note: This article has been edited with the help of Artificial Intelligence.
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