Rising motor insurance premiums are being largely driven by external cost pressures but there are shortcomings in how some insurers handle claims, according to the Financial Conduct Authority, which is taking action against some firms to improve poor claims practice.

Analysis by the regulator shows that increases in the cost of motor claims – due to higher prices for cars, parts, labour, energy and more complex cars and supply chains – have contributed to premium increases. The cost of hire vehicles, the number and cost of theft claims and uninsured drivers have also risen significantly, suggesting that increased costs outside of firms’ control, rather than firm profit, were the biggest cause of recent premium rises in motor insurance.

While it saw some good practice in the home and travel sector, the FCA said it also uncovered ‘concerning’ evidence of poor claims handling practices, including a lack of oversight of outsourced services, resulting in poor customer outcomes, delays in settling claims and high complaint volumes. It also identified insufficient management information resulting in failures to promptly identify and resolve claims handling issues and delays.

Where it has seen poor practice from firms, the regulator says it is addressing it directly with them, including taking action against specific firms where necessary.

Sarah Pritchard, deputy chief executive of the FCA, said: “Insurance provides peace of mind but people must be confident they can get a fair deal and be treated right when the worst happens.

“External cost pressures are primarily to blame for recent motor premium increases, not increased firm profits, but there is some more work to do on claims handling, particularly in home and travel. That’s why we’re stepping up – making sure claims are handled promptly and fairly and pushing for a coordinated effort to tackle the root causes of rising motor premiums.”

The FCA is also providing the evidence needed for coordinated action from government, industry, and other regulators, as part of the government’s motor taskforce, to help drive down the cost of motor premiums. However, it adds that while this could help limit cost increases, it cannot prevent them.