Efforts to help people understand home and travel insurance ‘must be improved’

Concerns that some home and travel insurance policies are being chosen simply on price have been raised by a committee, which said efforts to help consumers understand products should be improved.

The House of Lords Financial Services Regulation Committee raised concerns in its report about a lack of consumer understanding about what is and is not covered by policies, with a focus on price rather than the value that people are getting from different levels of coverage.

The lack of awareness contributes to claims being declined, the report said.

Price competition has led to the “hollowing out” of insurance products, where products have reduced levels of cover so they are more competitive on price, the committee said it had heard during its inquiry.

The committee said home and travel insurance can cover a wide range of risks, particularly compared with other products such as car insurance.

It also said it had heard from a range of witnesses, including insurance companies, that there were particular elements of insurance products that are consistently poorly understood by consumers, including the definition of storm damage, and that they may not be covered for wear and tear.

The report said: “Insurance products are inherently complex and their value is often unclear until a claim is made.

“This poses a challenge for consumer understanding. We are concerned that despite the problem being widely recognised, common misunderstandings persist.”

It also said there are concerns about the growing use of AI (artificial intelligence) by consumers to research home and travel insurance, with the potential risk of some responses being misleading or incorrect.

Invest at least £100 in Stocks or ETFs of your choice. Get fractional shares worth £50!

Terms and conditions apply.

Go to website

ADVERTISEMENT

Invest at least £100 in Stocks or ETFs of your choice. Get fractional shares worth £50!

Terms and conditions apply.

Go to website

ADVERTISEMENT

The Financial Conduct Authority (FCA) should look at what it can do to make people aware of the potential problems in relying on AI in making insurance purchasing decisions, the committee said.

The report said that, according to the FCA, in 2024 around 22 million home insurance policies were in force in the UK, amounting to more than £7 billion in premiums, and more than 6.8 million travel insurance policies were in force, totalling £1.2 billion in premiums.

But the committee said home and travel insurance products are complex and consumer understanding is low, despite the requirements under the FCA’s consumer duty for firms to support consumer understanding.

Under the consumer duty, financial firms are required to put customers at the heart of what they do, including when designing products and communicating with them.

The committee also raised concerns that, while price comparison websites have driven competition and helped people to find affordable insurance products, this has led to a focus on price rather than the overall value of products.

The committee pointed to a lack of readily available and comparable data on elements of product value other than price.

This inhibits comparisons on product value, particularly data on claims outcomes, the committee said.

It highlighted concerns that the impact of poor consumer understanding of products often becomes clear only when a claim is made.

The report said: “We heard that claims experiences can vary significantly, and the FCA has acknowledged the need for further work on claims-handling practices which carry a higher risk of consumer harm, including outsourced claims handling and cash settlements.”

The FCA had reported that in 2025, claims acceptance rates were between 62–71% for home insurance and 83–86% for travel insurance, compared with 99% for motor insurance, the report said.

The committee said the FCA should produce a roadmap with clear timescales for delivery. It should outline how it will address poor claims handling practices, make sure comparable outcomes data is widely available and develop how it measures the impact of the Consumer Duty, the committee said.

Committee chairwoman Baroness Noakes said: “Comparison websites have made it easier for people to find cheaper insurance, but the lack of good data on other aspects of product value means that many home and travel policies are chosen on price alone.

“The industry and the FCA need to speed up and improve their efforts to help people better understand home and travel insurance, especially what their policies do and do not cover.

“It is concerning that many of these problems around consumer understanding and comparable data are well-known among industry and the FCA, but that significant progress has not yet been made.

“We know that the FCA is undertaking various pieces of work to make progress on many of the issues our report has highlighted, but the timescales are not clear, and it should produce a roadmap of what it is doing.”

Around four-fifths (79%) of insurance claimants are satisfied with claims handling, according to the FCA’s 2024 Financial Lives research.

The FCA is working with consumer groups and industry to improve understanding and outcomes, including on wear and tear in home insurance and disclosing medical conditions for travel insurance, and an update is expected by the end of the year.

An FCA spokesperson said: “Insurance should provide peace of mind and fair value.

“Most customers receive good service, but when standards fall short, firms must put things right.

“As the report notes, we had identified similar concerns to the committee – and are improving claims handling and helping consumers make informed choices.

“Where firms fail to deliver, we act.

“We have six open consumer duty enforcement investigations in insurance, including into claims handling.”

A spokesperson for the Association of British Insurers (ABI) said: “Insurers support millions of customers every year, helping them recover and rebuild when things go wrong.

“Our members take their responsibilities under the consumer duty very seriously and are committed to offering accessible products that provide fair value.

“Our members work hard to help their customers understand their individual needs and the products available.

“Doing more to help customers make informed choices based on their circumstances and not price alone is a priority for the industry.

“There is no one-size-fits-all solution to a complex issue that has many different causes, but we’re actively working with the FCA, our members, consumer groups and the wider sector to tackle this and make meaningful progress to improve customer understanding and outcomes.”