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Experts warn some insurance firms could be in trouble — what it means for your cover
Vicky Parry
21st Apr 2026
Most people never stop to think what would happen if their insurer failed. But with claims costs staying high and pressure still running through parts of the market, experts say it is worth knowing where you stand. If an insurance firm goes under, your policy does not always simply vanish — but you may not be as fully protected as you think.
Insurance is one of those products we buy for peace of mind and then push to the back of our minds. We pay the premium, file the documents away and trust it will be there if life goes wrong.
But what if the company behind the policy runs into trouble?
It is not the most cheerful question, but it is a sensible one. The UK insurance market is heavily regulated, and insurer failures are not everyday events. Even so, they do happen. And when they do, customers often find themselves asking the same urgent questions: is my policy still valid, can I still claim, and will I get my money back?
MoneyMagpie warning: If your insurer goes under, you are not usually left with nothing — but for many general insurance policies, protection is typically 90%, not 100%. That can mean delays, a shortfall, or the hassle of finding replacement cover quickly.
Why experts are warning people to pay attention
This is not about causing panic. It is about understanding risk before you need to rely on your policy.
Industry data shows the pressure claims are putting on insurers has hardly gone away. The Association of British Insurers said motor insurers paid out a record £11.7 billion in car insurance claims in 2024, driven by theft and repair costs. It also said insurers paid a record £6.1 billion in property claims in 2025, with weather damage continuing to push up losses.
That does not mean a wave of collapses is about to happen. But it does mean consumers should not assume insurance firms are immune from wider financial pressure.
Vicky Parry, Editor at MoneyMagpie, says:
“Most people assume insurance is simply there when they need it, full stop. But if a firm behind a policy gets into difficulty, the situation can become confusing very quickly. The protections are real, but they are not always as simple or as generous as people imagine.”
First things first: your policy does not usually become worthless overnight
If a regulated insurer becomes insolvent, your cover does not normally just disappear the moment the news breaks.
The Financial Services Compensation Scheme (FSCS) says there are generally two possible outcomes for customers of a failed insurer. Either the policy is replaced by a new insurer so cover continues, or eligible customers receive a refund based on the insurance premium portion of the policy. You can read the FSCS explanation here.
That point matters because people often assume one of two extremes: either everything is absolutely fine, or everything is completely lost. In reality, it tends to sit somewhere in the middle.
What usually happens next?
- Your policy may be transferred to another insurer
- You may receive a partial refund of the unused premium instead
- Claims may still continue while the failure is being handled
- You will usually be contacted by the insolvency practitioner, broker or FSCS when there is an update
Who steps in when an insurer fails?
The two names consumers most need to know are the Financial Services Compensation Scheme (FSCS) and the Financial Conduct Authority (FCA).
The FSCS is the statutory safety net for eligible customers of failed financial firms. On its insurance protection page, it says there are three main ways it can protect customers of failed insurers: paying towards replacement cover, funding premium refunds where due, and paying valid claims at either 90% or 100% depending on the type of policy. See the official breakdown here.
The FCA, meanwhile, oversees regulated firms and says that when an insolvency practitioner is appointed over a regulated firm, that firm continues to have regulatory requirements and responsibilities. The FCA says it supervises regulated firms, including those in insolvency proceedings, while they continue to be authorised or registered. Its latest guidance took effect on 28 April 2025 and can be read here.
Can you still claim if your insurance company goes under?
In many cases, yes.
The FSCS says that if you are a UK customer of a regulated insurance firm that has failed, then unless you have been told otherwise, your policy is likely still valid and claims will generally proceed as they would have done with the insurer. That guidance is an important reassurance for anyone worried that an ongoing claim automatically dies with the company.
But there is a catch: it can still be slower and messier than normal.
There may be extra paperwork. There may be delays while responsibility is transferred. There may be instructions from a broker, insolvency practitioner or claims handler that differ from the usual process. That is why people should not sit back and assume everything will sort itself out.
If you already have a claim in progress: keep every email, every payment record, your policy documents, photos, receipts and claim reference numbers. If your insurer is in trouble, organisation matters.
How much protection do you actually get?
This is where the detail matters.
According to the FSCS, for valid claims under failed insurers:
- 100% protection applies to certain categories including third-party motor insurance, employers’ liability, whole of life assurance, term life insurance and some other long-term insurance products
- 90% protection applies to many other types of general insurance claims, including home, pet and travel insurance
The FSCS also makes clear that if a policy is not replaced and a premium refund is due, it can only usually repay 90% of the calculated refund for most general insurance. It also notes that refunds relate to the insurance premium portion of the policy, not necessarily every fee paid at the outset.
This is the bit people often miss:
- You may not get 100% of your claim back
- You may not get every pound of your original premium back
- Admin fees and extras may not be included in any refund
- If you need replacement cover, you may have to move quickly
What if you paid for the whole year upfront?
If your cover is not transferred to another insurer, any refund is normally based on the unused part of the policy and only on the insurance premium element. The FSCS says the court-appointed insolvency practitioner determines the amount of the refund, and for most general insurance it covers 90% of the remaining policy premium.
That means someone who paid annually could get some money back, but not necessarily all of what they expected.
For households already watching every penny, that distinction matters.
The hidden risk: being left without cover
The financial loss is only one side of the problem. The practical risk may be even bigger.
If your policy is cancelled rather than replaced, you may need to arrange new insurance quickly. That is particularly serious with motor cover, because driving without valid insurance is illegal. Even where the failed policy remains valid for a time, people should not assume that will continue indefinitely without checking.
And if you do need a new policy, it may not be as cheap or as easy to replace as your old one.
“The danger is not always that you lose everything overnight,” says Vicky Parry. “It is that people are busy, they assume the admin will somehow happen around them, and they only realise too late that they need to act to protect their cover.”
What to do immediately if your insurer goes under
MoneyMagpie’s immediate action list
- Check the insurer’s website for an official update
- Look for the firm on the FSCS failed firms pages
- Keep all policy paperwork, payment records and claim documents
- If you have a claim, continue to follow official instructions and respond quickly
- Contact your broker if you bought through one
- Do not cancel your policy in a panic unless you have been clearly told to do so
- If replacement cover is not being arranged for you, start shopping around immediately
How to check if your insurer is properly protected in the first place
One of the best steps consumers can take before trouble ever appears is checking whether the firm they are using is UK regulated.
The FSCS protection only applies in specific circumstances, and it is tied to regulated firms and eligibility rules. The FCA’s register and the FSCS website are both worth checking before you buy.
That is not glamorous advice, but it is useful advice.
The bottom line
Experts are right to say this is something people should understand before they need to panic about it.
If an insurer goes under, your policy is not automatically worthless. Your claim may still go ahead. Your cover may even be transferred with little disruption. But there are also real limits: some claims are only protected at 90%, refunds can be partial, and delays are common.
That is why this is not just a technical issue buried in the small print. It is a real consumer question with real financial consequences.
The safest position is simple: know who your insurer is, check they are regulated, keep your paperwork tidy, and if a firm gets into trouble, act early rather than assuming someone else will sort it for you.
Useful official sources:
- FSCS: Insurance protection and compensation
- FSCS: Failed insurance companies – what happens next?
- FCA: Guidance on regulated firms in insolvency
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