When I gave evidence at the opening session of the House of Lords inquiry into the regulation of the consumer insurance market, one of the central issues was the gap between how easy insurance has become to buy and how difficult it can still be to understand.
That remained a recurring theme throughout the inquiry, particularly where customers reached the point of claim with a different understanding of their cover from the insurer.
Of course, there are legitimate reasons why a claim may not be paid. Reported claims figures can also include initial enquiries as well as fully submitted claims, so a lower claims acceptance rate does not, by itself, prove that customers have been treated unfairly.
But consumer misunderstanding cannot be treated as an acceptable explanation for recurring claims declinatures simply because the loss falls outside the policy.
Where customers repeatedly expect cover that is not there, the market needs to understand why. This is particularly important when declined claims are among the most common issues reaching the Financial Ombudsman Service.
Where the same misunderstandings appear repeatedly across claims, complaints and customer feedback, they are too important to ignore. It was therefore encouraging to hear a number of witnesses acknowledge that this remains an area where the industry can improve.
The FCA told the committee that where firms see rejected claims, complaints or underinsurance, they should investigate why those outcomes are arising and whether a lack of understanding is contributing to them.
The Financial Ombudsman Service made a similar point, saying firms should focus on known areas of confusion and consider them when designing products and customer onboarding.
That does not necessarily mean providing more information. Adding more wording to an already complicated journey may make understanding worse.
The objective should be to use claims and complaints data to identify the exclusions and conditions causing recurring confusion, then explain them clearly at the point when they are most relevant.
The test is not simply whether a clause justifying a decline can be found somewhere in the policy documents, it is whether the overall journey gives the customer a reasonable understanding of what it means for them.
Understanding needs to be measured
To do that effectively, insurers need to consider a range of different metrics.
Claims acceptance rates are a very important way of assessing customer outcomes, but they should be considered alongside settlement times, partial payments, customer satisfaction, complaint volumes and Financial Ombudsman Service outcomes.
A relatively high acceptance rate may still sit alongside delays, poor communication or disputes over settlement amounts. Equally, a lower rate may partly reflect product complexity, customer mix or the way enquiries are recorded.
Used in that wider context, claims acceptance rates become a valuable diagnostic measure.
Where an insurer, product, brand or distribution channel produces materially different outcomes from the wider market, the next step is to understand what is driving that difference. It may be policy scope, recurring misunderstanding, delays, partial settlements or the way complaints are handled.
Claims acceptance should not be viewed in isolation, but nor should material differences be dismissed. They should prompt further investigation and provide a starting point for understanding where customer outcomes could be improved.
The real test of Consumer Duty
A number of witnesses told the committee that Consumer Duty was embedded within their organisations. Boards receive more information, firms undertake more outcome monitoring and customer metrics receive greater attention.
That is important progress. But embedding Consumer Duty within governance structures is not the same as demonstrating that it has changed customer outcomes.
The Financial Ombudsman Service said it was still too early to identify a clear trend in its casework. That is consistent with our own analysis, which has found only limited and mixed movement in claims acceptance and complaints trends since Consumer Duty was introduced.
The real test will not be the number of committees formed, documents rewritten or customer journeys reviewed. It will be whether fewer customers reach the point of claim and discover that the insurance they bought was not the insurance they thought they had.
That cannot be established through policies and disclosure reviews alone. It requires firms to monitor claims, complaints and customer experience together, compare those outcomes with the wider market and act where persistent differences emerge.
Consumer misunderstanding is not simply something that explains an unsuccessful claim. It is information about how the product, communication and distribution process are performing.
The FCA told the committee that it was actively examining whether common definitions could improve understanding of terms such as wear and tear and storm damage. It also said that, if the industry could not agree on a meaningful approach, it would not rule out further action, potentially including a specific rule.
That should focus minds across the market.
If insurers can demonstrate that customers understand their products and that outcomes are improving, further rules may not be necessary. If they cannot, the case for regulatory intervention will become increasingly difficult for the FCA to resist.