Shares in insurer Admiral Group Plc (LSE:ADM) fell after the Financial Conduct Authority said the motor insurance market had "work to do" on improving claims handling.
An analysis of the market by the regulator generally found that rising premiums are mostly due to rising external costs rather than insurer profit.
The FCA cited rising prices for vehicles, parts, labour, and theft claims as major drivers of cost. However, it raised concerns over how some firms handle claims, particularly in home and travel insurance.
The regulator found weak oversight of outsourced services, high complaint volumes, slow claim resolution and low acceptance rates for storm damage claims.
Just 32% of storm claims sampled in 2024 resulted in a payout. Some firms were also criticised for using cash settlements without checking if they were appropriate.
Sarah Pritchard, deputy chief executive of the FCA, said: “Insurance provides peace of mind, but people must be confident they can get a fair deal and be treated right when the worst happens.
"External cost pressures are primarily to blame for recent motor premium increases, not increased firm profits, but there is some more work to do on claims handling, particularly in home and travel."
That's why we're stepping up - making sure claims are handled promptly and fairly and pushing for a coordinated effort to tackle the root causes of rising motor premiums.”
The FCA said it is taking action against firms with poor practices and is working with the government’s motor task force to address systemic issues in pricing.
Also today, the regulator published interim findings from its premium finance market study, finding that some insurers earn more than it costs to offer monthly payment options.
Further investigation will follow and a final report is expected by the end of 2025.
Admiral shares fell 2.2%, putting it bottom of the FTSE 100 table on the day. Smaller Sabre Insurance Group PLC (LSE:SBRE) shares barely moved.