Car insurance: why we're complaining more

A report by the Financial Ombudsman Service shows that more of us are becoming frustrated by what happens after we make a car insurance claim.

Last week the Financial Ombudsman Service, an independent body that deals with disputes between consumers and financial companies, revealed in its Annual Review that it had received over 1.2 million complaints in the year leading up to April 2012. Around 8% of all queries to the FOS helpline related to motor insurance.

While that may seem small, the report revealed that this sector is actually the second most complained about area of general insurance after payment protection insurance.

Motor insurance had 7,264 new complaints between April 2011 and April 2012, compared to 5,784 recorded in 2010/11.

So what is it about motor insurance that has got us so wound up?

Quality of repairs

When a vehicle is damaged in an accident some policies require an insurer to carry out the repairs.

The FOS reported that it had a variety of complaints about this seemingly simple process, including:

• repairs taking too long
• failure to fix the damage
• vehicles coming back with additional damage
• poor quality of repairs by approved garages
• repairs attempted on a vehicle that should have been written off 

The standout complaint in this area was the quality of repairs carried out with some people reporting their vehicle had come back with other damage or were just not fixed to a good standard.

In one case a claimant’s car came back after a repair making creaking noises that it hadn't before. The insurer argued this was to do with normal wear and tear. The FOS upheld the complaint and asked the insurer to pay for the additional work as the evidence from the dealership showed it was damage caused by the accident.

For more detailed case studies on this area of complaint and the decisions taken take a look at the FOS website.

Policy exclusions

A common cause of claims being rejected is when policy exclusions apply that many people are not aware of or just don’t understand.

One example of a tricky policy exclusion is drivers who leave their keys in a vehicle, leading to the vehicle being stolen. This seems like an open and shut case, leaving the keys in the car is giving thieves an easy ride, but the FOS deal with these sorts of disputes on a case by case basis and considers the situation before passing a judgement.

For this particular policy grievance the FOS asks these questions:

• Where was the car at the time of the incident?
• Was the driver in a position to deter the thief?
• Were there any extenuating factors that caused the driver to leave the car and keys?
• How was the policy sold and was the exclusion drawn to the consumer's attention?

Say for example your keys were in the ignition and you were standing by the car, this would be a deterrent to a thief and not you asking for your car to be nicked.

Read more about keys in car policy complaints on the FOS website.

Non-disclosure

Another policy trap for drivers is the non-disclosure clause that allows insurers to not pay a claim or cancel a policy when they feel a driver has failed to reveal important information when applying for or renewing an insurance policy.

One example the FOS report cites is when insurers have not been clear or customers have not disclosed information about ‘convictions’ like fixed penalty points.

It is always best to read your policy thoroughly and try to be as transparent as you can. Hiding information may give you cheaper car insurance but will be disastrous if you need to claim.

This is especially important if you are getting insurance through an intermediary like a comparison website as the broad questions asked may not fully cover how the policy you eventually choose to buy is set up.

Take a look at a few interesting case studies where the FOS explain how they came to a decision in non-disclosure cases.

Admin

Another big complaint from the consumer was around the administration of motor insurance. The grievances typically included:

• paperwork delays in settling claims
• unexpected changes sought by a broker or intermediary
• the insurer increasing the premium or changing the terms when the policy was renewed
• the insurer cancelling or refusing to renew the policy

In one case a person brought a dispute about the renewal of his policy. His insurer usually renewed his policy but for some reason in 2001 it didn’t and he needed to make a claim. The complaint was upheld by the FOS because it was clear he usually had his policy automatically renewed and the insurer couldn't prove it had taken steps to tell him his policy had expired.

Take a look at some of the motor insurance admin cases here.

How are disputes resolved?

Only 1 in 5 cases actually reached a formal dispute in the year leading up to April 2012 and of them the FOS resolved a record 222,333 – resulting in compensation in 64% of complaints.

The FOS prefers to resolve all complaints informally through mediation and conciliation. A decision is reached by using the law, codes of practice, regulatory rules and guidance available as well as evidence provided from both parties. These aspects are weighed up on an individual case by case basis.

Generally the front line staff on the phones will always encourage you to first take up their grievance with the company. After that the complaint is passed onto an adjudicator. If a case is more complex it is referred to a panel of 110 ombudsmen who will make a final decision.

More stand-offs

Unfortunately, as disputes multiply it looks like neither side wants to back down and resolutions are becoming harder to achieve quickly.

A spokesperson for the Financial Ombudsman Service told us how complaints have become more dificult to resolve as companies become less willing to concede and we become more demanding.

The FOS upheld 49% of motor insurance claims in the year leading to April 2012 – 4% more than the 2010/2011. The fairly even split suggests both parties can be in the wrong but that over half the time the customer is in the right, so it is always worth taking your complaint further.

If you have a complaint

If you think you have been treated unfairly and have a complaint about any financial product or company we explain how to go about pursuing it in Financial Ombudsman Service: how to complain to the FOS.

The OFT's concerns about the industry

We are not the only ones complaining about motor insurance practices.

This week the Office of Fair Trading suggested it would be referring the industry to the Competition Commission after it uncovered evidence that private motor insurers are "preventing, restricting and distorting competition" within the industry, potentially causing our premiums to go up by £225 million a year.

It found that insurers for people who were not at fault in an accident were targeting the at-fault party's insurer with a host of additional costs.

The OFT market study found that, for example, replacement vehicles were used for longer than necessary and that not-at-fault drivers were referred to more expensive hire organisations that tend to charge higher rates. These practices are estimated to add an extra £560 on each claim, which is then passed on to the rest of us in the form of higher premiums.

The OFT is concerned that, rather than competing on the quality and value of service provided to insured drivers, there is a trend for competing by increasing the costs of rival insurers by any means possible.

The OFT is now consulting on whether a fuller Competition Commission investigation is necessary.