Some mobile phone insurance companies are still unfairly rejecting claims, taking too long to process them or handling complaints poorly two years after being told to clean up their act, according to a new investigation by the financial regulator.

The Financial Conduct Authority (FCA) this week published the findings of its follow-up review into the mobile phone insurance market, following its initial investigation in 2013 which found a number of firms were failing to treat customers fairly.

In its original review of nine firms which dominated the market (it wouldn't name them), it found that providers were not handling complaints properly, descriptions of what was and wasn't covered were too broad and while the majority of policies promised to cover loss, many people weren't covered if they left their phones somewhere.

As a result, the FCA told the firms to clean up their act – but on revisiting the industry, it's found there are still significant shortcomings. See our Cheap Mobile Phone Insurance guide for what to watch out for with mobile insurance and how to get smartphone cover from £6/month.

What did the follow-up review find?

This time round, the FCA looked at a sample of 14 mobile phone insurance firms – some of which were scrutinised in the earlier review, though again the FCA wouldn't name the companies involved – to see whether its recommendations had been implemented.

It found the majority of firms had improved their practices – using clearer terms in relation to loss and theft and having a 'single contact' claims process – while six insurers now pay out on over 80% of claims. But it also identified the following failings:

  • Some firms still require claims forms or other submissions which duplicate information already provided by customers.
  • Five firms in the review still appear to operate a 'two stage' claims process, where some claims are routinely declined and any customers complaining are then likely to have that decision overturned.
  • Three of the firms in the review pay out on fewer than 60% of claims received.
  • Three firms take an average of more than 15 days to process and settle successful claims.
  • Some firms decline claims solely because of breaches of conditions which are unlikely to relate to the circumstances of the claim. The FCA also found other examples of loss and theft claims which appear to have been declined unfairly.
  • Five of the firms in the sample settle claims by repairing phones with non-manufacturer parts, potentially voiding the phone warranty.
  • At three firms complaints handling is not "sufficiently independent" of the rest of the business, increasing the risk that complaints aren't handled fairly.

The FCA has asked all the firms to provide it with a plan of action to ensure they make the necessary improvements, including changing the terms so they're clear about when and where consumers are covered, removing the 'two-stage' claims process (where initially it rejects a claim but then overturns the decision), increasing the amount of time customers have to put in a claim and handling claims more promptly.

If firms fail to improve, the FCA says it can and will take enforcement action, which could include levying fines and ordering firms to pay compensation to customers. It says three firms have already voluntarily agreed to compensate customers – though again, it wouldn't name them.

Mobile phone insurers still unfairly rejecting claims, watchdog finds
Mobile phone insurers still unfairly rejecting claims, watchdog finds

Do you need phone insurance?

It's important to understand mobile phone insurance isn't compulsory. Often deciding whether to get a policy comes down to the fact that you know yourself better than insurers do.

If you're likely to lose or damage your mobile, insurance is definitely worth considering. Otherwise, you could self-insure – where you put money aside each month into a top savings account in case you lose or damage your phone. Here are the key things to consider:

  • Check whether you're already covered via a bank account (you may need to register) or your home insurance.
  • Do a detailed check of what the policy covers, particularly if you're the sort of person who loses things.
  • Also check the policy excess, which is the amount of any claim you need to pay yourself. If it's too high, the cover may not be for you.
  • Complain to your provider if you're unhappy with the service. If you get nowhere after eight weeks, you can take your complaint to the free Financial Ombudsman Service or you can use the free Resolver* tool which helps draft your complaint and manage it too.
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