Regulation of the consumer insurance market

Insurance products are inherently complex and their value is often unclear until a claim is made. This poses a challenge for consumer understanding. We are concerned that despite the problem being widely recognised, common misunderstandings persist.

PCWs have driven intense price-led competition in the UK market. This has come with many benefits, including helping consumers find affordable insurance products. However, it has led to a focus on price rather than overall product value.

There is a lack of readily available and comparable data on elements of product value other than price. Not only does this inhibit the ability of consumers to compare products, it also prevents PCWs from being able to compare product value effectively, especially data on claims outcomes.

Given the challenges of consumer understanding, we are concerned about the burden of proof being on the consumer to show that a breach of a term of the insurance contract did not relate to the loss suffered.

Consumers are increasingly using AI to research insurance products. While this has the potential to benefit consumers and improve their engagement and understanding of products, the use of AI carries a risk of harm and may provide misleading or incorrect responses.

Limited consumer understanding is a significant contributor to poor consumer outcomes in the home and travel insurance markets. To some extent this is a result of the complexity of the products themselves and, more broadly, levels of financial literacy. This is also a result of poorly explained terminology and inadequate provision of information to consumers. While there is a limit to what regulation and disclosure can do to improve understanding, we believe that further efforts must be made to provide consumers with better quality information to understand products and make informed purchase decisions.

Given what appears to be widespread agreement among industry and consumer groups that consumer understanding is poor in this area, we are concerned there has not been more action to address this from either firms or the FCA.

The FCA should work with the Money and Pensions Service to ensure that home and travel insurance are appropriately reflected in wider efforts to improve financial literacy and consumer understanding of financial products.

As discussed in Chapter 2, consumers do not always understand the cover they have purchased, the information they are required to disclose, or the consequences of inaccurate disclosure. These problems, however, emerge only when a claim is made, often when claims are declined. Many poor claims outcomes can therefore be traced to a lack of consumer understanding, resulting in part from incorrect assumptions about insurance products which are not adequately explained when insurance is purchased.

Since consumer understanding is often tested only when a claim is made, the available claims and complaints data may understate the extent of consumer misunderstanding in the home and travel insurance market.

Despite there being general agreement that consumer understanding is the root cause of most declined claims, and that insurance firms told us that they are working to improve this, we are concerned that rates of acceptance remain low and do not show marked improvement. We consider how the FCA should address this in later chapters.

Outsourcing and cash settlements are not inherently harmful to consumers, and indeed can come with benefits. However, it is clear that they carry a risk of poor practice, and the FCA itself acknowledges that these are areas of concern in claims handling.

The FCA needs to respond more robustly , and at greater speed, to address poor practices in claims handling and must outline how it will do so. It is not satisfactory that it identified these issues in 2025 but has not yet commenced further work with firms.

It is not clear that enforcing minimum cover levels in home and travel insurance products would improve consumer outcomes. Such an approach could restrict competition, innovation and consumer choice and produce unintended consequences for product quality and accessibility. Product quality concerns should instead be addressed through more effective application and enforcement of the Consumer Duty.

Greater consistency in policy terminology and concepts commonly associated with consumer misunderstanding and disputed claims could improve consumers’ understanding and ability to compare products. We welcome the FCA’s work in this area and support further action where the evidence demonstrates that new rules or guidance would improve consumer understanding and comparability. These issues are not, however, new and we consider that both insurance firms and the FCA could and should have acted sooner.

The growing use of general-purpose AI tools by consumers to research home and travel insurance presents an emerging risk to consumers. They may provide inaccurate or unreliable information and introduce data protection concerns. The FCA considers that these tools currently fall outside the regulatory perimeter and so are not subject to the requirements of the regulatory regime. We were not convinced that the FCA was giving this sufficient attention, but we recognise that the Mills Review has only recently been published. We consider that the FCA should accelerate its response and should add home and travel insurance to the review of how consumers use AI proposed by the Mills Review.

We do not think it is clear whether AI models currently provide consumers with financial advice that would otherwise be regulated if provided by a person or firm. While some witnesses have suggested that the regulatory perimeter needs to be changed, it is not clear that a case for bringing AI tools explicitly inside the regulatory perimeter has been made. While the regulatory perimeter is ultimately a matter for Parliament, the FCA should consider what it can do itself to protect consumers and warn consumers about the limitations and risks of using general-purpose AI tools for financial decision-making.

We believe that the current regulatory regime is broadly capable of addressing the issues identified during this inquiry, notwithstanding the emerging risks arising from consumers’ growing use of unregulated AI tools. We do not consider that further prescriptive rules are generally the answer. If effectively implemented, supervised and enforced, the Consumer Duty has the potential to address the concerns identified and improve outcomes for home and travel insurance consumers.

The Consumer Duty has prompted firms to place greater emphasis on monitoring consumer outcomes and has led to some changes to products and practices, which we welcome. However, we cannot see clear and consistent improvements in consumer outcomes across the home and travel insurance markets as a result of the Consumer Duty. Although some effects may take time to emerge, the Consumer Duty has been in force for open products since 2023 and we would expect stronger evidence of market-wide change by this point. We do not think that 6 or 7 out of 10 is an adequate performance level for the FCA.

We are concerned that the FCA has not set out a sufficiently clear framework for implementing the Consumer Duty. The FCA identified a range of relevant indicators but did not explain how these would be brought together to judge whether the Consumer Duty was working or what degree and pace of improvement it expected. Without clearer measures of success, it is difficult for firms, consumers and Parliament to assess whether the Consumer Duty is delivering its intended outcomes.

We recommend that the FCA develop and publish its framework for implementing the Consumer Duty in the home and travel insurance markets. It should explain how evidence from specific products, firms and markets, together with trends in broader indicators of consumer outcomes, will inform its judgement of the Consumer Duty’s overall impact. It should also set out how it will assess firms’ compliance consistently and compare consumer outcomes across firms, so that it can identify and address poor performance.

Persistent consumer issues in the home and travel insurance markets may indicate that firms require clearer guidance from the FCA on the standards it expects them to meet under the Consumer Duty. Although the FCA has published examples of good and poor practice, it is not clear whether these communications are driving change across the industry or how the FCA assesses their impact.

We recognise that supervisory interventions may resolve problems within individual firms more quickly than formal enforcement action. However, resolving problems privately and on a firm-by-firm basis limits the wider impact of the FCA’s action. It reduces the public deterrent effect, gives other firms less clarity about unacceptable practices, and is less likely to drive an industry-wide improvement in standards.

We are concerned that there remain considerable problems within the home and travel insurance markets despite the potential of the Consumer Duty to address them. The FCA must demonstrate that it is prepared to take firm and visible action to enforce the Consumer Duty.

We recommend that the FCA set out how it will strengthen the implementation, supervision and enforcement of the Consumer Duty in the home and travel insurance markets. The FCA should: Establish a consistent reporting framework for firms that supports the comparison of consumer outcomes; Provide clearer and more effective guidance on what it expects of firms and the consequences where these expectations are not met; Review the balance between supervisory and enforcement action to ensure that its interventions both resolve problems within individual firms and drive timely improvement in standards across the market .

Where the FCA determines that it is appropriate to rely on supervisory action, it should consider how it can bring relevant issues to the attention of the broader market.

The FCA has ongoing or planned work across a number of areas in home and travel insurance that we raise in our report. While we welcome the fact that this work is under way, the timetable for delivering these different pieces of work has not been made clear.

The FCA should publish a roadmap setting out its planned programme of work relating to home and travel insurance with expected delivery dates. The FCA should provide this Committee with an update in 12 months on progress against that roadmap.

Additional granularity in the data collected by the FCA on consumer outcomes in home and travel insurance, including the GI value measures, could support more targeted supervision and enforcement in relation to poorly performing firms and reduce the need for market wide interventions.

We welcome the work from the FCA and the FOS to collect more data to better understand the impact of different distribution channels on consumer outcomes in home and travel insurance.

The FCA should continue to develop its approach as a data-led regulator to support effective and targeted supervision and enforcement in the home and travel insurance markets.

The FCA’s GI value measures data is not yet sufficiently consistent or comparable to fulfil its intended purposes of supporting supervision and enforcement, promoting competition based on value and improving consumer understanding. We welcome the FCA’s review, but in the absence of voluntary agreement between industry firms, longstanding reporting inconsistencies must now be resolved by clearer rules.

The FCA should act swiftly to ensure consistent reporting of GI value measures data across firms. The FCA should prescribe standardised definitions and reporting requirements.

As part of its review, the FCA should assess whether reporting at brand level and additional measures, such as time taken to pay claims, would provide meaningful information for supervision and consumers, and could be used by distributors during the sales process to support competition based on product value.

The FCA should monitor whether consumer outcomes are improved by the availability and use of comparable outcomes data.