Risky business: Consumer confusion around general insurance

Executive summary

General insurance products are widely held by UK consumers to protect against things going wrong in their lives. It is vitally important that consumers are buying insurance products that meet their needs, and give them adequate protection in the event that they make a claim. That might be following a car crash, a flood in their home, or when needing medical treatment on holiday.

Financial Conduct Authority (FCA) data shows that for some insurance products, particularly travel and home, claims acceptance rates are low. According to their most recent data, nearly four in ten (37%) of claims were rejected for buildings insurance and one in five (20%) for single-trip travel insurance.

Unless they have personal experience of having a claim rejected, consumers are generally confident that their insurer would pay out in the event of a claim. Given low claims acceptance rates for some products, this suggests some consumers are receiving nasty shocks when their claims are rejected, and experiencing financial, psychological and time harm as a result.

Low claims acceptance rates can result from insurers failing to pay out claims in line with policies, or from consumers making inappropriate claims. While we know insurers sometimes fail to get it right, we also know this isn’t the whole story. 

Our new evidence explores whether these low claims success rates reflect consumer misunderstandings about insurance, and whether these might be exacerbated by the ways insurance is sold. To assess whether elements of the sales journey could contribute to the likelihood of rejected claims later down the line, we explore how people search for insurance, compare options and buy insurance products, their understanding and expectations about cover, and the assumptions they make about the cover they take out.

Consumers commonly lack understanding of the limitations of insurance.

We tested a number of potential claims scenarios with consumers, asking them whether they thought they would be covered for things like lost luggage or missed connections for travel insurance, or wet rot or storm damage for home insurance. Overall we found that people struggled to anticipate which scenarios they would be covered for, with many saying they ‘don’t know’, and the rest being split as to whether they believed they would be covered or not.

In some situations, consumers assumed they would be covered for things, when the reality of their policies was more complex. Consumers often drew on their memory of questionnaires completed during the purchasing journey to assess whether something would be included or not. Where they were more aware of exclusions from policies, this was often prompted by a given item being singled out as an ‘add-on’ to a product. 

We have identified three common misconceptions that may lead consumers to an incorrect assumption about whether they would be covered for a given scenario: 

• When they take out cover for a defined item or event, consumers have little understanding of any limitations of this cover, e.g. that travel insurance may not cover missed flight connections, or that home insurance only covers specific insured events. 
• When a situation is due to events beyond a consumer’s control, i.e. ‘not my fault’, they often assume they will be covered.
• Whilst consumers understand that negligence and wear and tear are factors that can limit insurance cover, there is sometimes little understanding of what might constitute negligence or wear and tear.

These issues may be more likely to bite in home and travel insurance policies, which could be more complex or more likely to involve limitations of cover than other products, potentially explaining the higher rates of rejected claims for these products. One large insurer recently told Which? that 72% of its declined contents claims resulted from a lack of cover or policy exclusions, often related to customers not selecting optional add-on cover like personal belongings or accidental damage. [1] Our exploration of the purchasing journey clarifies how these issues emerge. 

Consumers typically approach buying insurance with a disengaged mindset. 

We find that whilst consumers recognise the necessity of taking out insurance, ultimately they’re buying a product they hope they will never have to use. They don’t want to spend any more time and energy than they need to on choosing a policy, seeing it as a 'tick-box' exercise. Beyond recognising that they need some kind of insurance cover, people don’t typically have a strong sense of what they're looking for. 

Where they lack knowledge or a strong sense of their needs, consumers make simplified assumptions about cover.

Quite often consumers think that insurance products are ‘much of a muchness’. 64% of insurance buyers agreed with the statement that most insurance products offer similar levels of protection.

There’s also an assumption that all insurance products are held to a basic standard - the majority (65%) believe that insurance products must meet a minimum level of cover required by regulation.

As a result of their lack of engagement and motivation, consumers look for ways to simplify the choice and take shortcuts to selecting products.

The majority of consumers in our research used comparison tools to find their insurance products, and many rely heavily on these websites to offer policies that meet their needs for the best price. The questionnaires they have to answer to receive quotes give people a sense that the comparison tool is doing their due diligence for them and showing them policies that are tailored to them. Consumers won’t typically look beyond the first few options, and will base their choices primarily on price, and in some cases on other factors like whether they recognise the brand.

Very few consumers interrogate policies in any detail. It is fairly rare for consumers to open a policy document before purchasing a policy, let alone read it in full. Documents like this are understandably seen as long, technical and boring.

Even where consumers are concerned about how comprehensive cover is, they will often assess this using heuristics like price. For example, given a choice of three products or levels of cover, some assume that the cheapest product might not be sufficient, but that the most expensive is excessive, and so prefer the middle option. 

These behaviours are all individually rational: given that consumers are buying a product they do not anticipate using, minimising the investment of time and money in buying insurance makes sense. However, the heuristics (mental shortcuts) used and assumptions made during the purchasing process risk leaving consumers facing a shock when a claim is declined legitimately, but unexpectedly. A lack of consumer understanding in this market should not be surprising to the industry or policymakers. However, as these misunderstandings risk contributing to serious consumer harm, it is worth considering how the ways in which insurance is sold could be aggravating these issues. 

Difficulties with disclosure may also leave consumers at risk of rejected claims. 

Consumers also commonly struggle to complete the questionnaires used to personalise insurance quotes, meaning they risk accidentally providing inaccurate or incomplete information. 

Possible areas of non-compliance by insurers, brokers and comparison tools

Issues with consumer understanding and products meeting customer needs and expectations point to potential issues with compliance by firms with existing regulatory requirements as well as broader issues with how insurance markets are working. Specifically, the findings in this report, coupled with high claims rejection rates in home and travel insurance, would suggest significant limitations in the extent to which firms are meeting their obligations under the FCA’s ICOBS rules and the FCA’s Consumer Duty: 

1. The FCA’s ICOBS rules: ensuring that insurance contracts are consistent with the customer’s demands and needs. Our findings show that consumers often have little understanding of many limitations of the cover they have purchased. This suggests that firms may not be doing enough prior to a sale to understand and meet the customer’s demands and needs. Firms’ reliance on standardised and limited survey questionnaires suggests these regulatory requirements have become a tick-box exercise that is not delivering the FCA’s intended outcome.  
2. The FCA’s Consumer Duty rules: acting to deliver good outcomes for customers and addressing poor outcomes.Persistently high rates of rejected home and travel insurance claims is very clearly a poor outcome for customers, which means it is difficult to conclude that firms and intermediaries are sufficiently meeting requirements to address poor outcomes. While the FCA is clear that the Consumer Duty does not remove consumers’ responsibility, consumers can only take responsibility for their actions when they can trust that the products and services they can choose from are designed to meet their needs and they are supported by firms to make decisions. Firms should therefore be expected to design their products and services, sales processes, and communications to better reflect the challenges consumers face when buying insurance, in line with the relevant Consumer Duty outcomes. However, we have found specific issues related to these outcomes:

• Product and services outcome: There are some scenarios that can be insured that people very often expect to be covered, such as connected flights and baggage cover for travel insurance. However, there are often major limitations to these areas of cover in standard products. This suggests firms are not sufficiently designing their products and services to meet the reasonable expectations and needs of the intended target market. The FCA should investigate how firms have considered these factors when designing and reviewing their products.
• Supporting consumer understanding: We have found many crucial limitations of cover that consumers do not understand. This suggests firms are not sufficiently meeting existing requirements to support consumer understanding. Bold action is needed given the scale of the challenge. This is likely to require both improved communications and sales processes, to ensure that firms identify and seek to address potential misunderstandings that are tailored to the person’s capabilities and circumstances.

ICOBS and Consumer Duty requirements apply to firms throughout the distribution chain, with the FCA setting different expectations depending on the firm’s role in the sales process. This includes comparison tools which we have found are involved in the majority of sales of home, motor, travel and pet insurance but have not been a key focus of recent investigations by the FCA in insurance. 

There are also potential issues with compliance with firms’ wider legal obligations. Difficulties in the process for consumers to make relevant disclosures about their circumstances can leave consumers at risk of having their claim rejected or cover revoked, despite legal protections against unfair rejection including through FCA’s ICOBS rules. [2] There may also be issues relating to legally unfair terms under the Consumer Rights Act 2015, [3] particularly where providers’ terms are not sufficiently transparent.

What the FCA should do to investigate and address this

The insurance industry is under significant scrutiny at present. The regulator is rightly investigating a range of areas to address pricing practices in the insurance industry, including a market study on premium finance and a review of motor insurance business models. It is also investigating claims-handling arrangements and recently announced a broader remit than just how swiftly claims are handled to include whether firms’ ‘systems, controls, governance and oversight structures drive good consumer outcomes’. We welcome this broader approach given how interrelated firms’ design, marketing and sale of product and services is with issues with claims outcomes. 

We expect our findings on potential areas of non-compliance with ICOBS and the Consumer Duty, as well as other applicable legal requirements, to form a key part of the FCA’s ongoing review of claims-handling arrangements and for the FCA to intervene to address areas of non-compliance. 

This review marks a significant test of the FCA’s appetite to intervene to address poor outcomes under the Consumer Duty. Given the significance of our findings in this report and the risk of harm to consumers from rejected claims, the FCA must act decisively to address any failure by firms to meet existing requirements. The FCA may also need to undertake further work regarding how insurance markets are working to determine whether new interventions are needed to ensure these function effectively. 

Introduction

General insurance products are essential for consumers, protecting them against unforeseen losses, from needing medical assistance abroad, to storm damage to their home. But many insurance claims are not paid out.

The FCA’s general insurance value measures data shows that for some product types, claims acceptance rates are strikingly low. 37% of claims for buildings only insurance products, 28% of combined buildings and contents claims, and 21% of annual worldwide travel insurance claims were rejected in 2023.  This is a persistent problem, as illustrated in Table 1: claims acceptance rates for these products were similarly low in 2022, and in some cases have fallen further despite the FCA warning firms to ensure that their products offer fair value. 

This is not a consistent problem across general insurance products, however. Acceptance rates are much higher for motor insurance, at 99%, and around or above the 90% mark for pet insurance. However a high claims acceptance rate does not necessarily mean consumers always get a fair payout: the FCA has published findings looking at unfairly low payouts in motor insurance. In these cases, whilst a claim may technically be classed as ‘accepted’, consumers may still be experiencing harm.

Table 1: Claims acceptance rates for general insurance products (FCA data)

Our research suggests that consumers do not anticipate that claims may not be accepted or paid in full. In a new nationally representative survey of 4,000 consumers, we found that the majority of people felt confident that their insurer would pay out in the event that they had to make a claim. Across travel, home, pet and car insurance, at least eight in ten consumers said they felt confident about getting a claim paid. This was largely consistent across products, ranging from 80% for travel insurance to 87% for car insurance. 

This means many consumers are likely experiencing a shock when their claims are rejected, potentially causing significant psychological and time harm as people stress over finding another way to pay for necessary repairs, replacements or treatment, and spend hours complaining or trying to understand why their claim was not successful. Consumers often make claims in challenging circumstances; they might be dealing with a flood that makes their house inhabitable, a car accident or an unexpected illness abroad. In an already difficult situation, a bad claims experience can be extremely upsetting and damaging. Our previous research on consumer harm in the insurance claims process set out the very high levels of harm consumers experience when claims handling goes wrong. We found that 31% of claimants felt their insurer’s actions negatively impacted their stress levels, whilst one in ten felt it had negatively impacted their physical health. It is critically important to ensure that steps are taken to reduce the likelihood of this harm occurring.

The Financial Ombudsman Service (FOS) receives thousands of complaints related to insurance products each year, and the most common reason for these complaints is that a claim was declined. [4] Our analysis shows that just under half of these (47% in 2023 for major insurance products like home, motor, travel and pet) were upheld in favour of the consumer by the FOS, suggesting that the insurer wrongly rejected the claim, and should pay out, at least in part. That still leaves around half of decisions where the FOS judges that insurers were right to not accept the claim, often noting that insurance is not designed to cover all eventualities but rather specific and specified insurable events. Where this is the case, it suggests that consumers have misunderstood the nature of their cover. If a consumer has gone to the effort of complaining about a rejected claim to their insurer, and then escalating the issue to the FOS, they must strongly believe that their claim should have been covered.

In an effort to explore where in the insurance journey these misunderstandings arise and therefore how the resulting harm could potentially be avoided, our new research explores consumer journeys through the insurance sales process. This includes how consumers find and compare insurance options, the assumptions they make about the cover provided, and how well they understand the details of that cover at the point of purchase. This report sets out our findings and what this might mean for how insurance products can be designed and sold in the best way to avoid claims being unexpectedly rejected later down the line.

Methodology

This study took a mixed methods approach. Detailed qualitative work with a small number of consumers allowed us to explore in depth their understanding of insurance products, and how this is influenced by the insurance sales process. 24 participants, broadly representative of UK consumers and all with recent experience of buying home or travel insurance, or expecting to renew these products in the near future, took part in an online task which asked them to go through the process of selecting an insurance product, up to the point of making the purchase, followed by a depth interview to explore their experiences and perceptions in greater detail. This included presenting respondents with a number of hypothetical claims scenarios to test their understanding of the specific policy they chose in the buying task.

To ascertain whether the findings of this work held across the wider population, we then undertook a quantitative phase. Yonder, on behalf of Which?, carried out an online poll with a nationally representative sample of 4,000 UK adults. Those who had bought insurance were asked questions around their attitudes and behaviours towards buying, and asked whether they would expect a typical insurance policy to cover a range of hypothetical claims scenarios, building on the qualitative phase. 

This survey, particularly the elements where people were asked to report their behaviours when searching for and buying insurance, is likely subject to some social desirability bias, whereby people overreport favourable behaviours and underreport unfavourable behaviours, so we use this evidence in conjunction with our qualitative evidence, which, through building trust with participants over a longer period of time, is likely to provide a more accurate representation of consumer behaviour. 

Full methodological details are provided in the Annex. 

Outline of report

Chapter 1 looks at the gap between consumer understanding and expectations of insurance cover and the reality, by testing their expectations of whether they would be covered in different hypothetical claims scenarios. We identify three common misconceptions that underlie these misunderstandings about the limits of insurance cover, and which appear, at least in part, to be causing high claims rejection rates. 

Chapter 2 explores how consumers think, feel and behave when purchasing insurance, aiming to identify how these misconceptions emerge, and why consumers misunderstand the limits of insurance cover. 

Chapter 3 discusses the implications of our findings for firms and policymakers, outlines potential areas of non-compliance with existing regulatory requirements by firms involved in providing and selling insurance, and outlines what the FCA should do to address this.

Chapter 1: Consumers do not understand the limits of insurance cover

To explore how well consumers understand the limitations of insurance cover, and thus whether misunderstandings could be playing a significant role in the high claims rejection rates in the home and travel insurance markets, we tested a number of hypothetical claims scenarios with participants, checking whether they believed their insurance would cover them or not. The scenarios tested covered common exclusions or limitations among policies (see Annex for full details). 

Qualitative participants chose a policy as part of the research exercise, so we checked the answers they gave for the scenarios in their interviews against the related terms in this policy. In these cases, the data offers a specific check on how well consumers understood the policy they had chosen and whether it met their expectations. 

Overall, we found that participants were often unsure about whether their policy would cover different scenarios, and were frequently guessing to some extent whether it would. Each of our qualitative participants answered at least one scenario incorrectly, either thinking they would be covered when this wasn’t the case, or vice versa. Overall across all qualitative participants, just under half of the total answers to different scenarios were incorrect (40 out of 85). This suggests, at least in our qualitative sample, that there are significant limitations in the extent to which consumers understand the insurance cover they choose, setting them up for potential problems in the event that they have to claim against the policy. These incorrect answers also potentially expose a gap between consumers’ expectations of insurance policies - what they think insurance protects them against - and the reality of the coverage they purchase.

In our quantitative survey, we presented participants with some of the same scenarios, but asked about their expectations of whether a ‘typical’ policy would cover them for the scenario, since we did not have individual policies to compare against for each person. We asked consumers who were holders of the type of insurance relevant for the scenario, and who had been responsible for choosing and purchasing that insurance type, so these participants can be expected to have a level of understanding of such policies typical for consumers in the wider market. If anything, this analysis is likely conservative, as the market would also include some consumers who have not purchased such a policy before who might be expected to have a lower level of understanding. 

Our quantitative findings mirrored our qualitative findings, showing that consumers have mixed understanding about what insurance covers, and many are simply unsure. Below we explore some specific examples where we found a gap between consumer understanding of coverage and the typical policy, which could be sources of harm if consumers tried to claim against these issues.

Home insurance scenarios

Figure 1: Consumers were fairly evenly split on whether they thought our home insurance claims scenarios would be covered, and a sizable minority just did not know

Wet rot and storm damage to fences were both set out as exclusions in all 12 home insurance policies chosen by our qualitative respondents, and our analysis identified this as a common pattern across a wider set of buildings insurance policies. Many policies exclude storm damage to hedges and fences. Rot, whether wet or dry, is usually excluded, unless it can be demonstrated to be the consequence of a specific insured event, such as the escape of water, which the policy holder could not reasonably have been aware of or have taken action to prevent, illustrating the complexity of these policy terms. 

However, our quantitative survey found a third (34%) of participants thought they would be covered for wet rot, whilst nearly a quarter (23%) said they did not know. Two-fifths (39%) thought they would be covered for storm damage to a fence, whilst 15% did not know. In each case, this suggests that more than half of people holding these policies may be in a position where they would make a claim that would subsequently be rejected, based on a lack of understanding of the product. This is further validated by a number of FOS decisions where consumers have complained about insurers not accepting claims in these areas, as illustrated in the case studies below.

In each of these cases, although the policy was applied in line with its terms, the policy holders’ misunderstanding of their cover means they experienced time and psychological harm, including the time taken to complain to their insurer and escalate to the FOS, and the stress and uncertainty associated with this process, in some cases including lengthy delays to undertaking repairs due to a lack of clarity about where responsibility lay. While the issue may have been clear cut to the insurer in each case, consumer misunderstandings nonetheless cause significant harm.  

Consumers were evenly split in their view on whether they would be covered for roof damage from heat - 37% thought they would be covered whilst 38% thought they wouldn’t. A quarter did not know. In reality, most of the home insurance policies we examined stipulated that they would not cover heat damage by warping, melting, scorching or other forms of heat damage unless flames were present. These exclusions seem to have historically been intended to protect insurers from moral hazard associated with the careless use of cigarettes and heated household appliances, like clothes irons. However, insurers themselves recognised that extreme weather conditions driven by climate change may mean this type of damage is increasingly common [5], and in future homeowners could be caught out by this kind of exclusion.

Finally, we covered a contents insurance scenario that involved contents hypothetically being stolen whilst you are 'away travelling for three months'. Nearly half (45%) of contents insurance holders thought they would be covered. In fact, policies tend to invalidate insurance when the resident is away for longer than a defined period of time (often 30 or 60 days), unless the policyholder has contacted their insurer and specifically agreed otherwise. While many people won’t expect to be away from home for this long, if illness or family circumstances meant they had to travel, this could leave them at risk of making a claim that would be rejected. 

Travel insurance scenarios

For travel insurance, we found slightly more agreement among consumers, but understanding was still mixed. 

Figure 2: Consumers typically expected the travel insurance scenarios to be covered, with the exception of the competitive sport scenario

Half (49%) of travel insurance buyers thought that they would be covered for luggage stolen from an unattended car, whilst a third did not think they would be covered and 16% did not know. Results were almost identical for the scenario of having valuables stolen from a hotel room. The reality of cover in these situations can vary, with some policies having more stringent terms. For example:

• Policies have varying limits on baggage cover, but also usually have a separate limit for valuables, for example £200.
• Some policies stipulate that only valuables left in a hotel room safe will be covered, unless one is not available.
• Some policies will not cover baggage stolen from a car at all, whilst some will cover this if the baggage was in a secure area like a boot. Some were as specific as saying that they would not cover baggage left in a car if it was later than 9pm.

Half (51%) of travel insurance buyers thought they would be covered if a delay on their first flight meant missing a connecting flight with a different airline. However, we found several policies that will not cover a connecting flight if the connecting flight does not leave from the UK. Tightly drafted terms around delays and departure which limit coverage of missed flights are a common cause of complaints, as in the case studies below. Again in these cases, while the decisions may have been in line with policy terms, the people involved still suffered stress and uncertainty.

Common misconceptions behind consumer confusion about coverage

Whilst our survey results gave us a measure of how many insurance buyers believe they will be covered in different scenarios, our qualitative interviews allowed us to interrogate in detail what drove consumers’ responses to the scenarios.

There were three common misconceptions that lead consumers to an incorrect assumption about whether they would be covered for a given scenario. 

1. When they take out cover for a defined item or event, consumers have little understanding of any limitations of this cover.
2. When a situation is due to events beyond a consumer’s control, ie ‘not my fault’, they often assume they will be covered.
3. Whilst consumers understand that negligence and wear and tear are factors that can limit insurance cover, there is sometimes little understanding of what might constitute negligence or wear and tear.

In our survey, three in ten (31%) participants thought their insurance would cover them for anything that wasn’t their fault and another quarter (25%) said they didn’t know. People’s views were sometimes reinforced by seeing ‘accidental damage’ as an optional add-on when they were searching for home insurance. They often see accidental damage as being optional cover for things that are their fault (like damage they or their children have caused), whilst assuming that the core product will cover them for everything else that’s beyond their control. 

Similarly, 29% thought it was true that if they have cover for possessions, they are protected against any event involving those possessions with little appreciation for any limitations on this. In reality, moral hazard means insurance will not usually cover people for things they could have taken action to prevent, for example by undertaking regular home maintenance or taking care to protect their property from theft. We found, however, that people struggled to define what might count as their own ‘negligence’ or ‘wear and tear’, and would not be covered on this basis, leading to potential misunderstanding and disappointment when people come to make a claim. These consumer expectations stand in stark contrast to the reality that insurance only covers specified ‘insurable events’. 

In our qualitative study, one or more of these misplaced assumptions about the nature of cover often fed into participants’ response to the scenario. For the scenarios that involved luggage stolen from a car or valuables stolen from a hotel room, consumers’ rationale was often that they have baggage cover and therefore they would be covered. They often did not take into account the circumstances, but rather simply identified that they had luggage cover.

'I’d like to think I’d be covered for this, baggage is essential' -Travel insurance (upcoming renewer)

'I think it would [cover me]. I think I had luggage cover in there' -Travel insurance (upcoming renewer)

Several participants expressed an understanding that their actions could compromise their cover; for example, many felt it was reasonable that they should have to place their luggage out of sight if kept in a car. But those who had more specific terms in their policy (for example no cover at all for luggage in a car or no cover after 9pm), did not expect these specific exclusions. 

Heat damage to a roof through warping and cracking was another scenario that frequently tripped consumers up. Their rationale around this scenario tended to be that this is a situation that is not their fault and isn’t wear and tear, so should be covered by home insurance:

'If it isn’t normal wear and tear then I should be covered' - Home insurance (upcoming renewer)

Similarly with the connecting flights scenario, participants saw this as a situation that is beyond their control and therefore should be covered.

'I’m covered because it’s a flight issue, it’s not a me problem' -Travel insurance (upcoming renewer)

The sales process can help inform consumers

There were some scenarios where our qualitative participants were more likely to correctly identify the boundaries of their insurance cover, which can help us identify opportunities to improve consumer understanding. 

Sometimes cues from the sales process helped consumers to identify when they would not be covered, particularly when they could relate the scenario back to the questionnaire they filled out on the comparison or insurer’s website, or to cover add-ons that were offered. For example, some home insurance buyers anticipated that pest-related damage may not be covered because they could recall this being offered as an add-on when they were searching for insurance:

'There was something about pests I remember… I don’t think it will be covered' - Home insurance (unsuccessful claimant)

In some cases, consumers were even prompted by previous experience and understanding of insurance, as opposed to this specific task. For example, when we asked respondents if they thought their travel insurance would cover emergency dental treatment, several thought it would not be covered because they recalled that dental cover is not usually included as standard in medical insurance policies. In actual fact, most travel policies we looked at did include some cover for emergency dental cover to relieve pain.

'In a healthcare policy, dental and optician isn’t usually covered' - Travel insurance (upcoming renewer)

This indicates that people are able to absorb information through the insurance sales process when it is provided in a way that is salient to them, and that there is a potential opportunity here to improve consumer understanding of insurance, and reduce the harm associated with rejected claims. The next section explores how consumers engage with the insurance sales process in greater detail, both to understand the roots of the misunderstandings set out in the chapter and to identify opportunities to address the harm. 

Chapter 2: Consumer misunderstandings and the insurance purchasing process

This chapter explores how consumers navigate the process of purchasing insurance, seeking to identify potential root causes of the consumer misunderstandings about the limitations of cover identified in Chapter 1, which we believe are partially causing high claims rejection rates. 

Limited consumer engagement and understanding

Understandably and unsurprisingly, consumers do not usually enjoy buying insurance. While they recognise that it is important to take out insurance, they want to spend as little time as possible choosing a policy. More than a quarter (27%) of people in our survey said that they find insurance buying ‘boring’ and an equal proportion said they just try to get it done as quickly as possible. True figures are likely higher, given that social desirability bias may reduce the accuracy of this question in a survey.

Insurance products, like home and travel insurance, are unlike most purchases. Instead of buying something they plan to use, people are paying for protection for an unforeseen loss, such as falling ill abroad or having flood damage in our home. People hope to never need their insurance policy - and this is part of what drives their reluctance to spend time, energy and money on picking a policy. In the words of two of the participants in our qualitative research:

'I’m paying for something I’m never going to use' - Travel insurance (upcoming renewer) 

'I've never claimed in my life so don't want to spend a lot on it' - Travel insurance (recent renewer)

Insurance buying can feel like hard work, especially at times when there is other ‘life admin’ to do

Beyond the challenge of finding motivation to buy a product you hope to never need, the process of choosing insurance can also feel challenging to consumers. For many people, choosing an insurance policy can feel like a long process with too many things to think about. Six in ten (59%) insurance buyers in our survey felt that it takes a long time choosing the right insurance product. One qualitative participant described it as 'more work' after their day job that felt like too much of a 'mental load', a sentiment shared by several others. 

'It’s a hard and overwhelming process [choosing insurance] which requires time to do, which is a privilege' - Home insurance (recent renewer)

Several participants also highlighted that insurance (particularly home insurance) is often taken out at a time when they have lots of other ‘life admin’ to do, for example whilst buying a house. This added time pressure makes it harder for them to absorb all the details. 

'When you buy a place it’s so rushed and you don’t understand the ins and outs' - Home insurance (recent renewer)

This was particularly felt by those who had only recently become homeowners, but some participants also noted travel insurance was the last thing they sorted before going away. 

'It's one last thing to sort before travel, admin' - Travel insurance (upcoming purchase)

'As we were buying, I just wanted to make sure we had the cover in place for when we legally needed it' - Home insurance (recent renewer)

In these cases, people felt that making sure some sort of policy was in place was more important than the details of the coverage. 

Consumers lack knowledge of their needs

For the most part, participants did not have a strong sense of what their needs were when they went about buying insurance:

'I’ve never really thought about what I want before going into the process, it’s a quick tick boxing exercise' - Home insurance (recent renewer) 

'I have no idea if the policy will suit my needs, because I really don't know what my needs are - I don't know what the level of cover would need to be for things like medical expenses because I have zero concept or point of reference to how much medical expenses cost when abroad... I really don't want to think about levels of cover - because that would lead down a rabbit hole of all the things that could go wrong, and worrying about different outcomes, and do I feel safe going abroad etc - it's unnecessary.' Travel insurance (upcoming purchase)

In some cases, as in the quote above, people preferred to avoid thinking about the scenarios in which they would need to claim on their policy, or recognised they didn’t have the necessary information to understand what good coverage for them would look like. Similar dynamics are likely to occur in home insurance, as people struggle to understand the value of their contents, or what the rebuild cost of their home might be. 

Where participants did have a sense of what they wanted from insurance, it was typically broad and vague. For example, participants identified that they needed 'medical cover' and 'baggage cover' as part of travel insurance, but didn’t consider whether there might be  limitations to that cover, or what value of cover they would need. 

A minority of participants mentioned tailoring their policies to their personal needs and circumstances, where they identified a risk that was particularly salient to them. However, this was only observed where something triggered their awareness of the risk. For example, a parent mentioned adding accidental damage to their home insurance policy now that they have children. Another mentioned checking for cover for flood damage because they live in an area at high risk of flooding, and knew there was a flood not long before they moved to the area. 

Where consumers are more engaged and vigilant in the buying process, it is often driven by a negative past experience

Some participants were more engaged with the process and vigilant about choosing the best policy. Where this was the case, it was often motivated either by a bad personal experience with insurance, or negative stories from friends or family. For these people, the possibility of experiencing issues later down the line when trying to make a claim was more front-of-mind.

'I’m more cautious…I just feel like I’m being conned…what’s the worth of having insurance if I’m not insured' - Home insurance (unsuccessful claimant)

For some participants, this scepticism about having claims paid out encourages them to choose a more expensive option, assuming that this will provide better cover: 

'I’ve heard horror stories from friends. The devil is in the details. As I've got older I prefer to pay more, it's better to pay more now and have less problems later' - Home insurance (upcoming renewer)

Others took additional steps to do their ‘due diligence’ when picking a policy, like Phoebe in the case study below.

It should be noted, however, that the issues previously set out - finding buying insurance hard work and lacking an understanding of what their needs are - still persist for those more vigilant buyers. They simply bake in one or two extra steps as a result of their increased awareness of what can go wrong. The case study above is an example of where a consumer is more vigilant as a result of a previous rejected claim. However, her vigilance is largely focused on the specific circumstances around her rejected claim and will not necessarily improve her understanding of the policy as a whole. 

The complex and contingent nature of insurance products, together with the difficulties associated with understanding what cover is needed, make it challenging for consumers to engage actively with the process of buying insurance. Our research shows that this engagement is further undermined by perceptions of the nature of the insurance market, specifically a lack of variation.

Consumers think insurance cover is largely standardised

Another reason that most consumers may not interrogate the details of cover is that they often see policies as having a similar offering. Several qualitative participants took the view that a lot of different insurance options pretty much amount to the same thing.

'In reality, it’s all much of a muchness, the same cover' - Home insurance (upcoming renewer)

This was supported by our quantitative survey too - 64% of consumers agreed with the statement 'most insurance products available on the market offer similar levels of protection', suggesting that they do not view the fundamental cover as differing significantly between different policies. Consumers were much less likely, however, to agree with the statement that most insurers offer the same quality of service (44%), suggesting that they are more likely to anticipate a difference in terms of the service offered compared to the cover itself. 

Figure 3: Most consumers agree that different policies offer similar levels of protection

This view that policies are largely similar in terms of coverage may be exacerbated by the way policies are presented through comparison tools. Comparison tools are helpful for consumers because they summarise policies, making it easier for consumers to compare them, but in doing so they necessarily overlook the many detailed ways in which policies can vary. 

The UK’s largest comparison tools typically only surface a handful of variables to consumers - the price of the policy, levels of excesses, sometimes the headline level of coverage (e.g. the pound value of buildings, contents or medical cover) or a Defaqto star rating, and whether a couple of specific elements are included or available as add ons. A consumer browsing these pages may make the assumption that coverage only varies among these dimensions. Even where more information is provided on the first page of results, for example whether coverage is new for old, includes alternative accommodation or freezer contents, these tend not to be elements that vary significantly between policies, potentially further reinforcing the perception that the only real differences between policies are price and coverage amounts. 

While some comparison tools surface further details about policies in a list-style format when a customer clicks through, these are often provided in a way that makes it difficult for a consumer to compare the details of policies [6]. When many consumers rely on these tools to identify insurance policies, it is perhaps not surprising that they conclude policies must be very similar. 

Expectations of regulation

The view that insurance products offer similar levels of protection also appears to be related to consumers’ assumptions about regulation. Consumers broadly assume that regulation is in place to ensure the quality of insurance products. Though they may not know the FCA by name, they assume that someone is regulating these products to ensure that they are fit for purpose: 

'I just trust there is a system in place to make sure all these providers do what they say' Home insurance (recent renewer)

The majority of consumers in our survey (65%) believed the following statement to be true:  'Insurance products must meet a minimum level of cover as required by regulation'. Just 6% thought this statement was false, and three in ten (29%) said they didn’t know. Similarly, 57% thought it was true that 'Regulators of the insurance market will make sure products are fit for purpose', whilst just one in ten thought this was false. This suggests that at a population level, people have a strong expectation that insurers will be held to account by regulators and there are minimum standards in place. 

Figure 4: Most consumers think that regulations are already in place to ensure insurance products are fit for purpose and provide a minimum level of cover

Price and brand reputation are key heuristics for choosing a policy

In the absence of a strong sense of what they are looking for in an insurance product, and given people think products are broadly similar, consumers tend to use price and the reputation or familiarity of a brand as key heuristics when choosing a policy. Just under half (48%) of insurance buyers ranked price as the most important factor in deciding which insurance product to buy, far outstripping any other factor as the first choice, with eight in ten (79%) placing price in their top three factors. 

Figure 5: Price was most frequently chosen as the most important factor in choosing an insurance policy

It’s not all about finding the cheapest product

Comprehensiveness of cover was the second most highly ranked factor in choosing insurance in our survey. Again, social desirability bias may lead us to question this result, as it contrasts with both the findings from our qualitative interviews, which suggest that consumers are disengaged, do not want to spend too much time deciding and therefore make minimal efforts to assess how comprehensive different cover options are, and the quantitative finding that participants think insurance products are broadly similar. 

Deeper investigation, however, suggests that it is not so much that consumers consider the comprehensiveness of cover to be unimportant, but more that as opposed to inspecting the details of policies, they assess how comprehensive cover is using heuristics like price.

Whilst some consumers will simply go for the cheapest option as a default, others use price as an indicator of how comprehensive cover is. Some are reluctant to go for the cheapest option, seeing it as an indicator of poorer quality cover. As one participant with a past unsuccessful claim experience said:

'There will be a reason it's cheap, and the cover will be rubbish' - Travel insurance (unsuccessful claimant)

For some, that leads to them going for a ‘middle’ choice: the price is still reasonable, but they anticipate that it will provide better cover than the cheapest option, and they recognise the importance of having adequate cover. This tendency towards the middle option is an example of the widespread and well-known behavioural bias called extremeness aversion.

'[I] tend to go for something in the middle' - Travel insurance (upcoming purchase)

'I’m not necessarily going to go for the cheapest. I’m going to scroll down and see what the cover is in comparison, and I’m looking for a name I recognise' - Home insurance (recent renewer)

'I tend to not go for the most expensive, nor the cheapest' - Home insurance (upcoming renewer) 

Among those for whom the quality of cover is most important, this can push them towards choosing the 'premium' option, because they assume that it will provide better cover and help them avoid any issues in the event of a claim.

'You don’t want to feel stressed in the thick of it. With top tier, you expect no issues and hold them accountable' - Home insurance (upcoming renewer)

However, this is a potentially misleading simplification. The price will vary depending on a range of factors, like the provider, the excess level or the maximum limits of cover (eg £2,500 baggage cover for travel insurance rather than £2,000). A higher price does not necessarily mean that the coverage itself is more comprehensive. 

Brand reputation and/or familiarity was also an important factor. A third (32%) of insurance buyers put the provider’s reputation as a top three factor in choosing insurance cover, whilst 16% chose the familiarity of the brand. Over a third (36%) of insurance buyers told us that they tend to choose providers that they know of or have used before. Brand is often used as a kind of ‘sense check’ - the brand is reputable and therefore the policy will likely be good enough, and so the brand ratifies their choice.

'I chose the first policy that came up, it was the cheapest and had underwriters I’d heard of before' - Travel insurance (recent renewer)

'The companies that advertise, like Churchill dog, make them feel relevant and that they've got the money to pay out. A safe bet' - Home insurance (upcoming renewer)

Where participants had chosen a brand they were not familiar with during the online research task, they sometimes mentioned taking extra steps as a result of not recognising the brand - for example, more than one respondent mentioned choosing a brand they were not familiar with and therefore checking google reviews to ensure that the brand was ‘reputable’. Often the reason for preferring ‘big brands’ was that major companies would be more likely to have good processes for resolving problems.There may be some value in this - a well-known brand is less likely to be fraudulent, for example, and is likely to place some value on maintaining its reputation. However, Which? research finds that the performance of insurance brands does not vary reliably with size, suggesting this is likely to be a poor proxy for quality [7]. 

Our case study below sets out a typical approach to buying insurance for someone who is reluctant to spend much time on the process and wants to make a quick choice, using comparison tools to do so.

Consumers prefer summaries to detailed policy documents

Consumers are unlikely to read policy documents in any depth, further reducing opportunities to address misconceptions of insurance cover. During our online qualitative task, just four of our 24 participants opened the policy document of the product they chose. For the most part, they skim read the document, looking for anything that stood out to them or looked off, simply affirming the choice they had already made. Only one participant used policy documents to actually compare policies and inform their decision. Again, this supports the suggestion that consumers believe underlying policies are similar.

 For our other participants, reading policy documents was not a part of their decision-making process, with several commenting that the terms either take too long to read, or are too complicated to understand, or both. This chimes with wider research, for example Fairer Finance’s analysis of the FCA’s 2022 Financial Lives survey, which found that across home, motor, pet and travel policies, a majority of consumers only look at policy documentation briefly, or just at the key points. 

'To be fair, nobody has time to read the small print and the terminology bamboozles the average person' - Travel insurance (unsuccessful claimant)

Several participants acknowledged that by not reading the full policy document they do not know fully what they are buying and that this could leave them at risk, but this still did not move them to examining the documents - in many cases, simply because they do not know how to read and fully digest them. This may also reflect the belief, identified earlier, that the regulation of insurance means minimum standards are in place. 

'I don’t know how to read legal documents - I would need to employ a solicitor to break this down for me!' - Travel insurance (upcoming renewer)

'All the little prints, I know I should read, I don't, I'll be honest with you, I am not sure if it covers everything, so you have to take that risk' - Travel insurance (upcoming renewer)

These comments reinforce findings from Fairer Finance about the incomprehensibility of many terms and conditions documents, which limit their accessibility to many consumers. Improvements may have been expected following the introduction of the Consumer Duty, which explicitly asks firms to take steps to ensure those with poorer literacy do not receive worse outcomes, and to ensure that they communicate to all consumers in a way that they are likely to understand and which allows them to make informed decisions. However, Fairer Finance analysis finds readability scores have not generally improved, and scores in home and pet insurance have marginally worsened between 2023 and 2024. 

Shortened Insurance Product Information Documents are intended as a solution to this challenge, however FCA data shows that across insurance product categories, at most around half of people remember receiving this summary, suggesting engagement with even these simplified documents is low [8]. Our research echoed this, finding that consumers were more likely to engage with product information documents than the full policy wording, but that engagement with these summary documents was still low. When they did look at product summaries, participants were appreciative of the simplicity of how they are laid out in a visual way, with ticks and crosses to show what is covered and what is not. One participant who looked at a summary document during their interview commented on how  the summary was easy to navigate:

'It’s just two columns, what's covered, what's not' - Travel insurance (upcoming renewer)

Nevertheless, simply scanning summary documents is unlikely to provide consumers with a comprehensive understanding of the limits of their cover, and may explain some of the misconceptions and common misunderstandings of coverage limits we identified in Chapter 1. 

Consumers lean heavily on comparison tools

More than half (55%) of home insurance buyers told us that they used a comparison website to find their insurance product, along with 54% of travel insurance buyers [9]. Car insurance buyers were even more likely to use a comparison website at 62%. 

Figure 6: Comparison websites are the most common way for consumers to find insurance

Consumers like comparison tools because they show the ‘best deals’, and allow users to compare prices and policies with much less effort than visiting multiple individual insurers’ sites:

'It saves you from going to individual companies, I work full time, I’m busy, I can’t look through them all' - Travel insurance (upcoming renewer)

Eight in ten (80%) of those who used comparison tools used them because they help them find the best price. The majority (64%) said they make it easier to compare insurers and 49% said it makes the process of choosing and buying insurance quicker. 

Figure 7: Consumers use comparison websites because they help them find the best price, and allow them to compare providers and policies.

We found our qualitative participants placed quite a high level of trust in comparison tools, believing that they are pulling out policies that meet their needs and that they are ‘doing the hard work’ for them, and presenting them with the key information. Whilst the primary purpose of comparison tools may be to compare prices, participants also trusted them to surface the most appropriate policies for them. 

'Someone has gone through and pulled out the important bits – they’ve got my best interests at heart' -Travel insurance (upcoming renewer)

This held true in our survey too: 81% of insurance buyers said they trust comparison websites to help them find the best price, and a similar amount (77%) said they trust them to help them find the best cover for their needs. This trust level was considerably higher than for insurance providers themselves - 53% said they trust them to find the best price, and 62% trust them to find the best cover for their needs. 

Figure 8: Consumers trust comparison websites to surface the best deals and policies that meet their needs, more so than they trust providers themselves

Consumers’ shallow engagement in the insurance market creates space for misunderstanding

This research helps us to understand the factors potentially leading to consumer misconceptions of insurance coverage. Consumers hope never to use insurance products, which combined with their belief that coverage is largely standardised, and limited understanding of their needs, leads to shallow engagement with the insurance market. Consumers commonly use comparison tools to surface products, choose using a handful of heuristics for quality, primarily price and brand, and don’t engage with detailed policy documents. While individually rational, these behaviours leave consumers with a very limited understanding of their insurance coverage, which puts them at risk of disappointment when they try to make a claim, and may explain, at least in part, the high claims rejection rates observed in the home and travel insurance markets. 

Figure 9: Summary of factors contributing to consumer misconceptions of insurance coverage

Difficulties with disclosure can also put consumers at risk

One other factor which may contribute to the high claims rejection rate is challenges consumers face with disclosure when buying insurance.

The questionnaires used to generate personalised quotes reinforce the idea that price comparison tools and insurers are showing policies that are tailored to the individual’s specific needs and circumstances. However, some questions can be difficult to answer, leading consumers to give a ‘best guess’, without necessarily realising that any incorrect answers to questions could affect their cover in the event that they need to make a claim. 

For example, several of those tasked with finding home insurance in our qualitative research specifically commented on the question around the type of lock they have on their front door, commenting that they have 'no idea'. With answer options commonly including reference to a specific BSI standard, BS3621, it is not surprising that this flummoxes consumers. They also sometimes struggled with drop-down lists giving them a set of defined options, if they felt that nothing in the list matched their situation. 

'The variety of questions about locks, boilers, roof on different websites worries me…It feels like it's all on the consumer' Home insurance (upcoming renewer)

While the Consumer Insurance (Disclosure and Representations) Act 2012 provides a level of protection to consumers who unknowingly give incorrect or incomplete information, Which? still hear of, and FOS are frequently upholding, cases where consumers are being penalised for inaccurate disclosures, despite having made their best efforts to provide accurate information, as in the case studies below.

These issues may, therefore, also be playing a role in the high claims rejection rates being observed. Consumers should also in some cases be protected by section 11 of the Insurance Act 2015 where an insurer is trying to rely on a term or exclusion that is not relevant to the actual loss to which the policyholder’s claim relates. It is unclear whether or not claims-handling processes are properly taking such issues into account.

Chapter 3: Policy implications

Our research shows that many people lack an understanding of insurance, which means they struggle to engage with the market and as a result are vulnerable to having claims rejected. This can cause significant financial and emotional harm, in addition to the significant and widespread harm that our previous research found from firms’ claims-handling processes.

Our key findings are that: 

• Consumers hope to never use their insurance policies, so they typically have a low level of engagement with the market. They also often lack a clear understanding of their coverage needs.
• Consumers assume that products are largely standardised, due to a lack of visible variation between products and expectations of regulation.
• As a result of their lack of engagement and motivation, consumers look for ways to simplify the choice and take shortcuts to selecting products, using price and brand as heuristics of quality, and trusting comparison tools to surface appropriate options for their needs. There is little engagement with policy documents at the point of purchase, with buyers seeking simple summaries.
• Ultimately, the combination of these attitudes and behaviours can lead consumers to misunderstand the nature of their insurance coverage. Common misconceptions lead consumers to think they would be covered when they may not be, likely contributing to high claims rejection rates.

This harm appears to be materialising most in rejected claims in the home and travel insurance markets. This may be due to claims for these products being more complex or more likely to involve limitations of cover than for other products. Some claims may simply be unfairly rejected but for those where the firm has fairly rejected the claim, we have found three common misconceptions that may lead consumers to an incorrect assumption about whether they would be covered for a given scenario: 

1. When they take out cover for a defined item or event, consumers have little understanding of any limitations of this cover.
2. When a situation is due to events beyond a consumer’s control, i.e. ‘not my fault’, they often assume they will be covered.
3. Whilst consumers understand that negligence and wear and tear are factors that can limit insurance cover, there is sometimes little understanding of what might constitute negligence or wear and tear.

Some of the scenarios that we tested for home and travel insurance were cases where policies sometimes provide cover and that could reasonably be expected to be provided as standard. Cover for connecting flights that set off from outside the UK is a clear example of this. However, many of the scenarios may not be required by all customers. Cover for fences, for example, is not required by everyone purchasing home insurance. Many of the limitations of cover that people struggled to understand are also for risks that could not reasonably be covered by insurers, such as wear and tear and negligence. Overall, this points to some potential issues with the design of products but primarily an issue with consumer understanding of insurance products. 

The significance of these findings

These findings should not surprise the insurance industry or policymakers. Insurance is a highly unusual product, where people are buying something to protect themselves against potential losses that in most cases will not materialise. Consumers therefore typically do not get to use the product and service, unlike most other purchases they make, and lack the opportunity to build tangible experience of the product. Our findings show even consumers who have previously made a claim find it difficult to understand how to better approach choosing a product and provider from such a limited experience. 

While consumer behaviour and knowledge in this market might not be surprising, it’s still worth taking seriously. Issues with consumer understanding and products meeting customer needs and expectations point to potential issues with compliance by firms with existing regulatory requirements as well as broader issues with how insurance markets are working. The findings in this report, coupled with high claims rejection rates in home and travel insurance, would suggest significant limitations in the extent to which firms are meeting their obligations under the FCA’s Insurance Conduct of Business Sourcebook (ICOBS) rules and the FCA’s Consumer Duty. 

The ICOBs and Consumer Duty requirements apply to firms throughout the distribution chain, with the FCA setting different expectations depending on the firm’s role in the sales process. This includes comparison tools which we have found are involved in the majority of sales of home, motor, travel and pet insurance but have not been a key focus of recent investigations by the FCA in insurance.

Possible areas of non-compliance by insurers, brokers and comparison tools

This research has highlighted four key areas where the FCA should investigate further to ensure firms throughout the distribution chain are meeting existing requirements: 

1. The FCA’s ICOBS rules: ensuring that insurance contracts are consistent with the customer’s demands and needs

The FCA’s ICOBS rules require firms, including intermediaries such as comparison tools or brokers, to ensure that a proposed insurance contract is consistent with the customer’s insurance demands and needs. Firms must also provide a statement of the demands and needs to the customer before the conclusion of the contract. This is typically done in the application process via a series of questions that are then played back to the person applying for insurance before they complete the purchase. 

Our findings show that consumers often have little understanding of many limitations of the cover they have purchased. With home insurance products, for example, standard questionnaires do not ask consumers about the boundaries of their home and whether they require coverage for outdoor furniture and fittings. Travel insurance product questionnaires also typically do not ask whether the customer intends to take a connecting flight or requires protection for this. This suggests that in many cases firms may not be doing enough to ensure the cover meets the consumers expectations in many cases and that these regulatory requirements have become a tick-box exercise that is not delivering the FCA’s intended outcome.

Issues with firms meeting these longstanding regulatory requirements are not new. The FCA, for example, wrote to providers of comparison tools in 2020 warning them about issues with meeting requirements in ICOBS on customer demands and needs. The FCA’s letter said that some firms have demonstrated a poor understanding of their regulatory obligations on this issue. Our findings suggest that this remains an issue with sales via comparison tools but also with sales via other channels. This is an area that needs renewed investigation and action from the FCA to ensure firms bring key limitations to the attention of the customer and check that this is in line with their demands and needs before arranging or agreeing an insurance contract.

2. The FCA’s Consumer Duty rules: acting to deliver good outcomes for customers and addressing poor outcomes

The Consumer Duty’s Consumer Principle requires firms to act to deliver good outcomes for retail customers and to proactively take action to address poor outcomes. This should lead to firms investigating the root causes of poor outcomes and then acting to address these by putting in place processes to tackle them. 

A high rate of rejected insurance claims is very clearly a poor outcome for customers. As this has been a persistent issue in the FCA’s data since it began reporting this in 2022, it is difficult to conclude that firms and intermediaries are sufficiently reviewing and addressing poor outcomes given that claims acceptance rates remain low in home and travel insurance. 

The FCA must investigate what steps firms have taken to address high claims rejection rates and complaints, and why in many cases these have persistently failed to address consumer misunderstandings. While what is reasonably expected by the FCA of firms depends on their role in the distribution chain, intermediaries should be requesting and monitoring data on claims acceptance rates and asking questions about the implications for the product’s target market assessment of their distribution arrangements. 

The FCA is clear that Consumer Duty does not remove consumers’ responsibility but that consumers can only take responsibility for their actions when they can trust that the products and services they can choose from are designed to meet their needs and they are supported by firms to make decisions. What is expected of firms by the FCA also depends on the nature of the product or service being offered, including the risk of harm to customers and the complexity of the product or service. Both are significant in insurance, justifying additional care beyond that seen in the market at present. 

The risk of harm from rejected claims is considerable. Our findings in this report also underline how the inherent complexity of insurance products combined with a lack of engagement and motivation from consumers when buying insurance further exacerbates this risk of harm. Given these features of the market, firms should be expected to design their products and services, sales processes, and communications to better reflect the challenges consumers face when buying insurance, in line with the relevant Consumer Duty outcomes. However, we have found specific issues related to these outcomes: 

(i) Product and services outcome

Manufacturers and distributors of insurance products have specific requirements under the products and services outcome regarding the needs, characteristics and objectives of the target market. The FCA also generally expects firms to consider the reasonable expectations of customers in their target market in relation to the product or service, as well as the risk of harm to customers and the complexity of the product. 

We have found that there are some scenarios that can be insured that people very often expect to be covered but in many cases there are major limitations to cover in standard products. In travel insurance, for example, this includes travel insurance for connected flights and cover for stolen luggage. This suggests that firms could be doing more to design their products to meet the reasonable expectations of their target market.

The FCA should investigate how firms have considered these factors when designing and reviewing their products. This should include investigating 

• what research firms have undertaken on the reasonable expectations of the target market;
• how they have reviewed rejected claims to understand how to better align products to customer expectations; and
• what action firms have taken to address issues with product design.

(ii) Supporting customer understanding 

The FCA requires firms to support customer understanding in their communications, to test communications and to regularly monitor their impact. Where firms identify issues they must investigate and correct any deficiencies, by adapting communications or products or processes, such as sales processes.

We have found that firms’ sales processes can improve understanding where people are prompted to consider a certain type of cover, often for an add-on. However, we have also found many crucial limitations of cover which consumers do not understand that suggest firms are not sufficiently meeting existing requirements. In particular, the FCA should investigate:

• how firms are testing and monitoring that they are supporting consumer understanding in their communications and sales processes; and
• whether firms can point to examples of changes to communications and sales processes that they have made to improve outcomes.

Our findings suggest that bold remedies are needed on consumer understanding given the scale of the challenge. This is likely to require both improved communications and sales processes, to ensure that the sales journey identifies potential misunderstandings that are tailored to the person’s capabilities and circumstances and seeks to address them before a sale is completed. This could include specific examples to bring abstract concepts to life for consumers. Notably, participants in our qualitative scenario testing mentioned how helpful and ‘enlightening’ they found the exercise. Similar questions could be integrated within purchasing journeys to provide timely feedback to consumers on their choices, and help them to assess product suitability more successfully. 

There are also potential issues with compliance with firms’ wider legal obligations. Difficulties in the process for consumers to make relevant disclosures about their circumstances can leave consumers at risk of having their claim rejected or cover revoked, despite legal protections against unfair rejection including through FCA’s Insurance Conduct of Business Sourcebook (ICOBS) [10]. There may also be issues relating to legally unfair terms under the Consumer Rights Act 2015, [11] particularly where providers’ terms are not sufficiently transparent, as well as possible breaches of unfair trading regulations [12].

What the FCA should do to investigate and address this

The insurance industry is under significant scrutiny at present. The regulator is rightly investigating a range of areas to address pricing practices in the insurance industry, including a market study on premium finance and a review of motor insurance business models. It is also investigating claims-handling arrangements and recently announced a broader remit than just how swiftly claims are handled to include whether firms’ ‘systems, controls, governance and oversight structures drive good consumer outcomes’. We welcome this broader approach given how interrelated firms’ design, marketing and sale of product and services are with issues with claims outcomes. 

We also welcome the FCA’s wider priority areas for ensuring compliance with the Consumer Duty, which include how firms have reported to their boards or governing bodies on complaints and undertaken root cause analysis, and supported customer outcomes and decision-making. Our findings relate closely to firms’ practices in these areas. 

We expect our findings on potential areas of non-compliance with ICOBS and the Consumer Duty, as well as other applicable legal requirements, to form a key part of the FCA’s ongoing review of claims-handling arrangements and for the FCA to intervene to address areas of non-compliance. This review marks a significant test of the FCA’s appetite to intervene to address poor outcomes under the Consumer Duty. Given the significance of our findings in this report and the risk of harm to consumers from rejected claims, the FCA must act decisively to address any failure by firms to meet existing requirements. The FCA may also need to undertake further work regarding how insurance markets are working to determine whether new interventions are needed.

Annex

The annex of the report can be found in the PDF copy of this report.

Footnotes

[1] Which? Money magazine (December 2024) Home insurers must get their house in order ↑. 

[2] Particularly FCA (2018) Insurance Conduct of Business Sourcebook (ICOBS). 8.1.1 R. Available from: https://www.handbook.fca.org.uk/handbook/ICOBS/8/?view=chapter ↑.

[3] Section 68 Consumer Rights Act 2015. The FCA may also take enforcement action if misleading actions or omissions by an insurer are in breach of the Consumer Protection from Unfair Trading Regulations 2008 ↑.

[4] From complaints collected from the FOS decision library at https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions. Complaint issues are based on the label applied by the FOS to each document, which record one of the issues raised by a consumer when the complaint was raised. While other issues may be present for any given complaint, ‘Claim Declined’ was by far the most common issue in our dataset (33% of all claims, against 14% for the next most common issue). For a full explanation of how this dataset was assembled and coded for issues upheld, see our 2024 report ‘Complaint Upheld’ here: https://www.which.co.uk/policy-and-insight/article/complaint-upheld-delay-distress-and-inconvenience-caused-by-insurers-a0tIy1M7GqFs ↑.

[5] Surewise (2023) Preparing and Protecting your Home from Heatwave Damage. Available from: https://www.surewise.com/home-insurance/articles/protecting-your-home-from-heatwave-damage/; Aviva (2024) How extreme temperatures can damage your property. Available from: https://www.aviva.co.uk/insurance/home-products/home-insurance/knowledge-centre/extreme-heat-and-your-home/ ↑. 

[6] Based on Which? analysis Compare the Market, Confused.com, Go.Compare, MoneySuperMarket, and Uswitch.com ↑. 

[7] Which? Best home insurance 2025 Available from: https://www.which.co.uk/money/insurance/home-and-mobile-insurance/home-insurance-reviews/best-and-worst-home-insurance-abtdC2Z1qveJ and Which? Best travel insurance companies and policies 2025 Available from: https://www.which.co.uk/money/insurance/travel-insurance/travel-insurance-reviews/best-and-worst-travel-insurance-ad1xp1C7eKFR ↑.

[8] Fairer Finance (2023) - The FCA’s latest Financial Live survey reveals some troubling facts about communications in the insurance sector. Available from: https://www.fairerfinance.com/insights/blog/what-does-the-fcas-latest-financial-lives-survey-reveal-about-the-state-of-communications-in-the-financial-services-sector ↑.

[9] Note, our question here asked about how people found the policy they finally purchased. Consumers may have used other tools while searching for the policy, e.g. those who eventually renewed their existing policy may have checked alternatives through a price comparison website. This may explain why our reported use of comparison websites is lower than other studies, for example CMA/Kantar Public (2017) Digital Comparison Tools: Consumer Research, Final Report. Available from: https://assets.publishing.service.gov.uk/media/58e224f5e5274a06b3000099/dcts-consumer-research-final-report.pdf, and FCA (2023) Financial Lives 2022. Available from: https://www.fca.org.uk/publication/financial-lives/financial-lives-survey-2022-key-findings.pdf ↑.

[10] Particularly FCA (2018) Insurance Conduct of Business Sourcebook (ICOBS). 8.1.1 R. Available from: https://www.handbook.fca.org.uk/handbook/ICOBS/8/?view=chapter ↑.

[11] Section 68 Consumer Rights Act 2015 requires businesses to ensure that their terms and conditions in consumer contracts are transparent, namely in plain and intelligible language and legible ↑.

[12] The FCA may take action under its general consumer law powers (now in the Digital Markets Competition and Consumers Act 2024) to enforce against unfair trading practices in insurance as in other financial services, for example on misleading actions or omissions in selling insurance or certain banned claims-handling practices ↑.