An estimated 270,000 drivers are receiving a total of £200m compensation from car insurers after the regulator found they were short-changed when their vehicle was stolen or written off.
The money is being paid out after a review by the Financial Conduct Authority (FCA) which found insurers had undervalued vehicles when paying out on claims.
In some cases, payments were automatically reduced for assumed pre-existing damage, a practice that particularly disadvantaged careful drivers who had looked after their vehicle and meant they did not receive enough money to buy a like-for-like replacement.
The FCA reviewed practices across the market, after warning insurers not to undervalue cars and other insured items when settling claims.
In June 2023, it told the insurer Direct Line to review five years of claims and pay compensation where appropriate, while in August this year Admiral said it had set aside £50m for customers who had been underpaid.
The FCA said insurers had changed their claims processes as a result of its action and would be contacting customers who were owed money. Already £129m of the £200m has been paid to almost 150,000 customers.
Sarah Pritchard, the deputy chief executive of the FCA, said: “We’ll step in when consumers aren’t getting fair value – and we are pleased to see that the practices which led to some unfair payouts have already changed. This means thousands of motorists are getting back what their car was really worth, in cases where cars have been stolen or written off.
“If you’re owed compensation, your insurer will contact you, or will have already done so – there’s nothing you need to do.”
Cormac Bradley, the senior actuarial director at the financial services consultancy Broadstone, said it had become increasingly difficult to value cars given the pace of price fluctuations in recent years.
“There’s also a higher number of cash settlements as vehicle repairs are hampered by supply chain pressures and labour shortages. Insurers need to be confident that they reflect the uncertainty appropriately in the customer’s favour to avoid undercompensation.
“This is no small challenge at a time of volatile car prices so it is pleasing that the regulator and the motor insurance industry have reached a resolution which will enable fair, historic compensation and certainty moving forward.”
A spokesperson for the Association of British Insurers said: “Insurers work hard to deliver the best possible service for their customers. There has been a lot of volatility in the secondhand car market in recent years which created challenges for insurers when trying to set valuations. Our members have made changes to their settlement approach and taken the necessary steps to support customers.”