Crack down call on insurance sales comes as one in three claims rejected

Consumers are being sold inadequate insurance policies unaware that they may not have vital cover only to discover the devastating financial and emotional consequences when their claims are later rejected.

The consumer group Which? is calling on the regulatory Financial Conduct Authority (FCA) to clamp down on some insurers selling practices which promote policies lacking clear information about exclusions and confusing or difficult to answer questions can lead to claims later being rejected

The consumer group raised concerns that some firms are failing to meet their obligations under the FCA’s Consumer Duty, which requires firms to focus on customer outcomes by putting themselves in customers’ shoes and take action proactively.

It said the impact of poor treatment from insurance firms can add to the trauma some customers, who may have experience fire or flooding, are already feeling.

Which? said its research found that questions consumers are asked to get an insurance cover quote can be difficult to answer for some customers. It said it found some consumers answer with ‘best guesses’ unaware that any missteps in answering the questions in a totally accurate way can have repercussions later if they come to make a claim.

In some instances people whose houses are uninhabitable due to a fire are told that when they bought the policy, they entered slightly incorrect information and now their policy is void.

It says high claim rejection rates points to a wider problem in the insurance industry. Among home insurers (for standalone buildings cover) over one-third (37%} of claims on buildings-only insurance are being rejected while more than a quarter (28%) of claims under combined buildings and contents insurance while a total of 21 per cent of claims for annual worldwide travel insurance are also dismissed.

Which? says the high rejection rates can be partly explained by how insurers behave during the claims handling process but it also suggests problems are originating with how insurance policies are initially sold.

Which? research found that consumers too often have little understanding of the limitations of some insurance cover such as the fact travel insurance may not cover missed flight connections, or that home insurance only covers specific insured events.

Which? is calling for the FCA’s ongoing review of insurers’ claims-handling arrangements to also address claims rejection rates for consumers with home and travel insurance.

The research shows some consumers have misconceptions about insurance and the extent of the cover with many buying insurance in the hope they’ll never have to use it.

Which? argues insurance firms could and should be doing a much better job of designing and selling its products. They say the FCA expects firms to “put themselves in customers shoes” but the consumer group doesn’t believe this is happening.

It is calling for the FCA to extend its current review to including whether firms are meeting existing requirements to sell products to meet customer needs and the reasonable expectations of their target market and failing to support customer understanding of key terms and exclusions.

Rocio Concha, Which? director of policy and advocacy, said: “The FCA has the power and responsibility to step in and protect consumers.

“The regulator must show its teeth and start taking tough enforcement action against insurers that are failing to meet their Consumer Duty obligations, or to comply with FCA insurance rules or wider consumer law.”

The FCA has been looking into various aspects of insurance and is keeping watch on the market to help ensure consumers get what they expect.

It has reviewed how firms are supporting their customers and using communications to support informed decision-making.

In the second quarter of 2025, the FCA also aims to release findings into how swiftly the insurance industry responds to claims, including where customers are more likely to show characteristics of vulnerability.

It has also highlighted good and poor practice regarding how firms are tracking consumer outcomes and acting on insight from complaints to drive improvements under the Consumer Duty.

An FCA spokesperson said: “We expect firms to help consumers to make informed decisions to buy insurance products that meet their needs.

“We’ve have intervened directly with firms where we’ve found poor customer service and claims handling.

“Currently, we’re looking at how quickly insurers respond to claims as part of a wider evaluation of the market, with findings set to be published later this year.”

The Association of British Insurers said: “Insurers appreciate how stressful making a claim can be, and their first priority will always be to support their customers.

“While the vast majority of claims are accepted and handled quickly, our members continue to work hard to meet their customers’ needs and regulatory requirements, including the Consumer Duty.

“The FCA recently published its priorities under the Consumer Duty for the remainder of 2024/25, and we will continue working closely with the regulator, members and stakeholders to explore more effective ways to improve consumer outcomes.

“As ever, it is vital to read your policy’s terms and conditions to ensure that the level of cover meets your needs, and you can speak to your insurer if you have any questions.”