Claims handling is where an insurance product is tested against the event it was sold to protect. For customers, this is often the point at which the value of the policy becomes real. For the FCA, it is therefore a central conduct issue rather than simply an operational function measured through turnaround times and cost.
The core rules remain important. ICOBS 8.1 requires insurers to handle claims promptly and fairly, provide reasonable guidance to policyholders and appropriate information on progress, avoid unreasonable rejection and settle claims promptly once settlement terms are agreed. Insurance intermediaries and insurers handling claims on another insurer's policy are subject to the relevant ICOBS 8.3 framework, which means firms need to identify their actual role before applying the rules.
In 2026, claims handling is also an explicit FCA insurance priority. The regulator has continued its work on home and travel claims, is monitoring customer outcomes and is expanding review of outsourced claims processes across delegated authority models and remuneration arrangements. Firms should therefore expect claims governance to be assessed through evidence of decision quality, customer support, management information and effective oversight, not only through service-level performance.
Start with the firm's actual claims role
The claims framework should begin with a precise map of who does what. An insurer may retain all coverage and settlement decisions, delegate part of the process to an MGA, use a third-party administrator or allow an intermediary to perform defined claims functions. A broker may assist the customer with notification while having no authority to decide whether the claim is covered.
That distinction affects both regulation and controls. ICOBS 8.1 applies to insurers, while ICOBS 8.3 contains specific provisions for insurance intermediaries and insurers handling claims on another insurer's policy. An intermediary without authority to deal with the claim should not create an operational process that leaves the customer believing a decision is being made when the matter should instead be forwarded or the customer told promptly that the firm cannot handle it.
Delegated authority should then be translated into actual workflow. Settlement limits, repudiation authority, exceptional payments, fraud referrals and cases requiring insurer approval should be clear to claims handlers and reflected in system permissions or review controls where proportionate. A contract stating the authority is not enough if the operating system allows staff to exceed it without detection.
Management should also know which entity is responsible for customer communication at each stage. Customers should not be passed repeatedly between insurer, MGA, broker and administrator because the firms themselves have not agreed who owns the next step.
Prompt and fair handling requires more than speed
Claims operations often rely on service metrics such as time to first response, average claim duration and open caseload. Those measures can be useful, but they do not by themselves establish that claims are being handled fairly.
A claim can be closed quickly because the decision was poor. Another can remain open for legitimate reasons because expert evidence or complex loss assessment is required. Management should therefore combine timeliness information with measures capable of testing decision quality and customer experience.
The FCA's home and travel claims review illustrates this point. It identified examples of good practice where firms had robust claims MI and customer-centred handling, but it also found areas requiring improvement in outsourced oversight, governance and the way firms understood customer outcomes. The lesson is that operational efficiency and regulatory quality need to be assessed together.
Reasonable guidance and progress information are part of that experience. Customers should understand what is required to progress the claim, what information is outstanding and why material delays are occurring. Repeated customer contact simply to discover what is happening can itself indicate that the process is not working well, even where the final coverage decision is correct.
Claim rejection needs defensible reasoning
ICOBS 8.1 requires insurers not to reject claims unreasonably, including through termination or avoidance of a policy. A defensible claims process should therefore make the coverage reasoning clear and ensure that relevant evidence has been considered before a final decision is made.
Decline rates can be a useful indicator, but they require interpretation. Different products and customer populations can legitimately produce different acceptance patterns. The regulatory issue arises when the firm sees an unusual result and cannot explain it or fails to investigate whether product wording, customer understanding, distribution or claims practice is contributing to the outcome.
The FCA's general insurance value measures data continues to show material variation in claims acceptance across some product types, with the regulator itself cautioning that reporting inconsistencies can affect interpretation. Firms should therefore avoid simplistic thresholds while still using claims outcomes to identify questions that require investigation.
Decline reasons are often more useful than the overall rate. If a significant volume of claims is rejected for the same exclusion, management should consider whether customers understand that limitation and whether the product remains appropriate for the target market. The correct response may extend beyond claims training into product design or distribution.
Decision letters should also explain the outcome clearly. Repeating policy wording without connecting it to the facts of the claim can leave customers unable to understand why the decision was made and can generate avoidable complaints.
Consumer Duty makes customer support part of claims governance
For retail business within scope, the Consumer Duty sits alongside ICOBS and makes the quality of customer support especially important. Customers should be able to realise the benefits of their policy without facing unreasonable barriers, which means the claims process itself can be a direct test of the consumer support outcome.
Friction needs to be considered in context. Asking for evidence necessary to assess a claim is not an unreasonable barrier simply because it requires effort from the customer. The problem arises where the process demands information that is disproportionate, repeatedly asks for material already supplied, routes customers through ineffective channels or creates obstacles that serve little legitimate purpose.
Claims can also change a customer's circumstances. Bereavement, serious illness, theft, flooding or displacement from home can create vulnerability that was not known when the policy was sold. A claims framework should therefore be able to identify relevant support needs during the life of the claim rather than relying only on information captured at onboarding.
The FCA's consumer support and vulnerability work reinforces the importance of flexible treatment. The firm should be able to explain what adjustments are available, how staff recognise when they may be needed and what outcome data shows about customers who require additional support.
Management information should reveal quality, not just workload
Claims MI should help management determine whether customers are receiving appropriate outcomes. Volume, average settlement time and open files may be operationally useful, but regulatory oversight normally needs a broader view.
Depending on the business, relevant information can include acceptance and decline rates, reasons for decline, complaints, re-opened claims, long-running cases, vulnerable customer outcomes, settlement methods, authority exceptions and performance by outsourced provider. The right measures depend on the product and risk rather than a universal dashboard.
Segmentation can be important. Firm-wide results can conceal weaker performance in one product, claims team, broker channel or third-party administrator. Management should therefore consider where comparison is meaningful and avoid averages that make genuine outliers invisible.
Thresholds also need judgement. A red indicator should have a defined management consequence, while a green indicator should not prevent investigation where other evidence suggests poor outcomes. The objective is not to colour the dashboard correctly but to create a process that detects and responds to emerging harm.
Claims MI should then reach product and Consumer Duty governance where it is relevant. If recurring claims evidence never leaves the claims function, the firm can miss weaknesses in product design, value or customer understanding.
Outsourced and delegated claims need active oversight
A regulated firm does not discharge its responsibilities simply by appointing a competent claims administrator or granting authority to an MGA. The 2026 Insurance Regulatory Priorities specifically extend the FCA's work into oversight of outsourced claims processes across delegated authority models and remuneration arrangements.
The oversight framework should establish what data the firm receives, how often it is reviewed and what triggers deeper testing. Service-level compliance is only part of the picture. The delegating firm should understand whether claim decisions, customer communications and support are producing acceptable outcomes.
File review and thematic testing can provide evidence that aggregate MI does not. A provider may meet average service targets while individual files reveal weak explanations, inappropriate evidence requests or inconsistent treatment of vulnerability. Audit rights should therefore be usable in practice and connected to a risk-based monitoring methodology.
Remuneration and incentives should also be understood. A commercial arrangement that rewards speed or cost reduction can be legitimate, but management should consider whether it creates incentives that could conflict with fair claims decisions or customer support. The relevant question is not whether an incentive exists, but whether the control framework understands and manages its possible effect.
Where problems are identified, oversight should have consequences. Enhanced monitoring, changes to authority, remediation or other action may be appropriate depending on the seriousness and persistence of the issue.
Complaints should feed claims root-cause analysis
Claims complaints can provide particularly valuable evidence because they often identify the point at which the customer's expectation and the firm's interpretation of the policy diverge. The firm should therefore analyse why complaints arise rather than focus only on response times and uphold rates.
Recurring themes can reveal different problems. Customers may misunderstand an exclusion, experience unreasonable delay, disagree with valuation, struggle to contact the firm or believe that the evidence requested is disproportionate. Those causes require different responses.
Financial Ombudsman outcomes can also provide useful information where relevant. An upheld case may expose a weakness in the firm's interpretation, evidence assessment or customer treatment and should prompt consideration of whether similar cases exist.
Root-cause analysis should therefore extend beyond the individual complaint where the issue appears systemic. If the same claims practice has affected a wider population, management should consider whether proactive remediation is required rather than waiting for each customer to complain separately.
Claims should feed product governance and fair value
Claims are one of the clearest sources of evidence about whether an insurance product provides the benefit expected by its target market. Product governance should therefore use claims information rather than treat it as an operational dataset owned solely by the claims department.
A product may require review where claim acceptance is materially different from expectations, where one exclusion generates repeated disputes or where service quality materially reduces the practical benefit customers receive. None of those indicators automatically establishes that the product is poor value, but they are relevant evidence that should be understood.
For relevant products, PROD fair value assessments should take account of the quality and benefits actually received by customers. Claims performance can therefore affect the value conclusion even where the premium has not changed.
The feedback loop is important. Where claims evidence causes a product, communication or distribution change, subsequent monitoring should test whether the outcome improved. That creates a stronger governance record than treating the claims issue as resolved once the immediate operational action has been completed.
What should senior management review in 2026?
Senior management should be able to explain what good claims outcomes look like for the firm's products and how it knows whether those outcomes are being achieved. That requires a combination of decision quality, timeliness, customer support, complaint information and oversight of any delegated or outsourced providers.
The 2026 supervisory focus makes three questions particularly important. Does the firm understand why claims are declined? Can it identify where customer experience is materially weaker? And does claims information lead to changes in product, communications or oversight when necessary?
The answer should be supported by evidence rather than assertions. A claims policy can explain what should happen, but the FCA's current approach is increasingly interested in what actually happens to customers and whether senior management acts when the evidence indicates a problem.
How Regulatory Counsel can support
Regulatory Counsel supports insurers, MGAs and insurance intermediaries with claims handling reviews, delegated claims oversight, Consumer Duty, management information, complaints analysis and remediation. We can undertake a focused claims review or examine claims within a wider insurance compliance audit.
Speak to Regulatory Counsel to discuss an insurance claims handling review.
Frequently Asked Questions
ICOBS 8.1 requires insurers to handle claims promptly and fairly, provide reasonable guidance and progress information, avoid unreasonable rejection and settle claims promptly once settlement terms are agreed.
ICOBS 8.3 contains provisions relevant to insurance intermediaries and insurers handling claims on another insurer's policy. The firm's exact obligations depend on its role in the claims process.
No. Outsourcing or delegation does not remove regulatory obligations that remain with the regulated firm. The firm needs appropriate oversight of the delegated arrangement and customer outcomes.
Yes where relevant. Claims outcomes can provide important evidence about customer support, product performance, customer understanding and the quality side of fair value.
We can review the regulated firm's oversight of an outsourced or delegated claims arrangement, including authority, MI, file testing, customer outcomes, complaints, remuneration and remediation.