SX3 Claims Sector Review 2025

As we close out 2025, SX3’s Adrian Gilbert offers his reflections on a year of significant change across the claims sector. Drawing on his claims auditing work with insurers and law firms throughout the year, Adrian shares observations on the key trends, challenges, and shifts that have shaped the claims arena and what they might mean as we head into 2026.

MARKET PERFORMANCE

As ever, we start with a high-level view of the trend we have seen through our claims performance reviews across Motor, Casualty and Property claims operations. From the performance reviews we have carried out in 2025 so far, overall, we have seen an increase in performance levels, albeit the worst are getting worse, and the best are getting slightly better:

AI IN CLAIM OPERATIONS – THE ZEITGEIST OF 2025

The stock market is booming on expectations of the improvements AI will bring to businesses, but the Chief Executive of Alphabet is saying, “Don’t blindly trust what AI tells you.” So, what’s the reality for the claim world?

A year ago, conversations about AI in claims handling were cautious, exploratory and even sceptical. Today, they’re unavoidable. The question around AI has shifted from “should we?” to “how fast and how safely?”

I’m very much in the positive camp when it comes to AI in claims operations. We’ve all had to do our fair share of grunt work in the past, and many will argue that this is essential, foundational training, but it can also be mind-numbingly dull and inefficient, which isn’t hugely attractive for customers or those seeking a career in claims. So, if AI can take on the routine tasks, freeing people to focus on cases that genuinely need human judgment and empathy, that feels like progress worth pursuing.

What strikes me from our work across different firms is the variability in AI maturity and appetite. Some insurers and law firms have moved beyond pilots into operational deployment – automated triage, document processing, initial assessments, customer communication etc. Others are still wrestling with foundational questions about accuracy thresholds, regulatory risk and what responsible deployment actually looks like. I hear the same tension repeatedly: nobody wants to be left behind, but equally nobody wants to be the cautionary tale.

The practical challenges clients raise with us are less about the technology itself and more about deployment realities. What accuracy rate is acceptable when making decisions affecting someone’s claim? How do you balance efficiency gains with customer experience? Can you improve both simultaneously, or does faster inevitably mean compromising on quality? I think the answer depends heavily on design and measurement, not just the technology itself.

Then there’s what I believe is the most critical question: what happens to people when AI takes on their routine work? The conversations we’re having suggest firms are grappling with this in very different ways. Some are investing significantly in retraining and upskilling, recognising that the role is changing, not disappearing. Others haven’t quite worked out what that transition looks like yet. It’s not just about learning new tools; it’s about fundamentally different skills when humans focus on the complex and exceptional rather than the routine.

AI technology is moving quickly, but the harder questions about accuracy, oversight, culture and future skills are the ones that will ultimately determine whether AI delivers on its potential or becomes another expensive disappointment. Both the optimism and the caution have equal measures of merit.

DELEGATED AUTHORITY

In 2025, the Financial Conduct Authority (FCA) intensified its scrutiny of delegated authority (DA) arrangements, placing a spotlight on how insurers, MGAs, and TPAs manage outsourced claims.

The regulator’s expectations are clear: firms must ensure robust oversight, fair treatment of customers, effective use of management information (MI), and full alignment with the Consumer Duty — regardless of who handles the claim.

In the past 12 months we’ve reviewed 57 DA arrangements, helping clients across the insurance value chain meet these evolving standards. Our engagements this year have included:

1. 1. • Conducting multi-phase strategic reviews of delegated claims handling across UK and European portfolios, with a focus on Consumer Duty compliance, MI accuracy, and governance consistency.
      • Supporting insurers and MGAs in developing and implementing Balanced Business Scorecards to monitor TPA performance across key metrics such as claim lifecycle, complaint handling, and customer outcomes.
      • Advising on the redesign of oversight frameworks, including the introduction of monthly operational meetings, annual strategic reviews, and real-time dashboard reporting.
      • Providing independent file audits and technical reviews to assess the quality of claims handling and identify areas for remediation.

Drawing on our experience, we recommend the following best practices for auditing delegated claims handling:

1. 1. 1. Adopt a risk-based audit plan, prioritising high-risk portfolios and partners.
      2. Use structured audit templates aligned with FCA expectations and Consumer Duty outcomes.
      3. Sample a representative mix of open, closed, and vulnerable customer claims.
      4. Validate MI accuracy and ensure data integrity across all delegated partners.
      5. Engage delegates in transparent feedback loops and track remediation actions.
      6. Escalate material findings to governance forums and integrate audit results into board-level reporting.

As the regulatory bar continues to rise, firms must treat delegated claims as an extension of their own operations. At SX3, we’re proud to support our clients in building resilient, compliant, and customer-centric claims ecosystems.

You might enjoy…

1. 1. • SX3 Case Study: Driving Better Customer Outcomes in Travel Claims

COMPULSORY MEDIATION IN MOTOR CLAIMS

The MoJ’s mediation pilot for claims under £10,000 (excluding personal injury) is narrow by design, but its ambitions are broader.

Testing whether early dialogue can divert disputes away from the courts and into faster, more proportionate settlement routes, this feels less like a contained experiment and more like groundwork for a wider shift in civil dispute resolution.

Recent CPR changes reinforce that trajectory. Judges can now pause proceedings and direct parties to ADR where settlement looks achievable, moving mediation from a voluntary option.

The Mazur ruling, by tightening the rules on who can conduct litigation, adds a further nudge. As law firms reassess their operating models and authorisation requirements, mediation becomes a more attractive, and perhaps necessary, route to resolution.

Together, these developments signal a move towards mediation becoming, in practice, compulsory across many motor claims pathways.

FCA REVIEW OF TRAVEL & HOME MARKET

The FCA launched a broad review of home and travel insurance claims handling in 2025 after rising concerns about poor consumer outcomes, including a formal super-complaint from Which? highlighting serious failings.

These two insurance markets were targeted because they have among the lowest claim acceptance rates (around 73% for home, 79% for travel) and can cause consumer harm when claims go wrong.

The review uncovered widespread problems in claims handling, summarised in the table below.

Regulatory Response

The FCA is providing individual feedback to reviewed firms and expects all insurers to self-assess against these findings. However, with no public enforcement action announced, Which? deemed the response insufficient – incorporating these findings into their super-complaint demanding concrete intervention by December 22nd. The review revealed an industry struggling with fundamental obligations under Consumer Duty. Whether December’s deadline brings enforcement or merely more review cycles remains the critical question for 2026.

Over the past 12 months SX3 have performed 11 insurer audits of home and travel claims practises as part of a wider program of 26 audits covering broader consumer claims practises.

You might enjoy…

1. 1. • SX3 Case Study: Assessing Fairness & Consistency in Repudiated Home Claims
      • SX3 Article: What Which? Missed About Home & Travel Insurance Claims

FRAUD & THE ECCTA

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) is now in force and it’s changing the way insurance businesses must think about fraud, governance, and compliance.

At its core is the new offence of “Failure to Prevent Fraud”, which applies to large organisations and came into effect in September 2025. If an employee, agent or third party commits fraud for the company’s benefit, the organisation ​can be prosecuted, unless it can demonstrate that reasonable fraud prevention procedures were in place. The extent of these procedures will also influence the prosecuting agency, the Serious Fraud Office and whether to investigate or pursue a Deferred Prosecution Agreement in the event of a breach.

The failure to prevent corporate criminal offence in ECCTA poses specific risks for insurance businesses and Claims in particular, due to the broad ecosystem of businesses servicing insurers and the nature of commercial relationships. For claims managers, this means a shift from reactive to proactive fraud management. Anti-fraud controls must be embedded in daily operations with fit-for-purpose risk assessment, clear documentation, regular training and robust oversight of third-party suppliers and adjusters. Claims teams should also leverage enhanced Companies House data to verify claimant and supplier identities.

The ECCTA also strengthens Companies House’s powers, requiring identity verification for directors and beneficial owners and offering new tools to validate commercial claimants and spot red flags.

At SX3, we’re helping insurers navigate this new landscape. From operational reviews to fraud risk assessments and testing of fraud response plans, we support Claims teams in building resilient, compliant processes that meet the ECCTA’s high bar.

MAZUR V CHARLES RUSSELL SPEECHLYS

September’s Mazur ruling raised a question that probably should have been straightforward: who can actually conduct litigation? The High Court’s answer was that individuals must be personally authorised, not just supervised or employed by an authorised firm, which has created major ripples that are still spreading through the sector.

What makes this particularly unsettling isn’t just the ruling itself, but what it revealed about regulatory clarity. Law firms had built operating models in good faith based on guidance they’d been given, only to find that guidance reversed in court. The SRA had assured firms their supervision arrangements were compliant before changing position. It’s left many wondering whether the judgment’s interpretation of the 2007 Act is even correct, a question CILEX is now taking to the Court of Appeal, though any hearing may not happen until early 2027.

For insurers, the practical impact is more contained than headlines suggest. Pre-litigation claims continue unaffected and given most RTA claims settle through portals without reaching court, operational disruption is limited. But within that smaller litigation space, there are real considerations. Law firms now require greater qualified solicitor involvement, which will likely increase costs. This creates questions on both sides of the fence: claimant firms may point to supervision requirements when defending their costs, while insurers want assurance from defendant panels about compliance.

Then there’s the question of scrutiny – both retrospective and going forward. For cases already in litigation, insurers may demand evidence of appropriate supervision, particularly where costs are being challenged. But this also creates a new pressure point for future litigated claims, with the potential for more frequent challenges to claimant firms around team composition and qualified oversight. Independent review of case files offers a way to satisfy compliance concerns without relying solely on panel self-assessment.

The sector is adapting while awaiting Court of Appeal clarity. For insurers and claimant firms alike, this could strengthen the case for earlier settlement strategies and greater use of ADR – approaches that sidestep litigation complications entirely.

You can download a full version of our 2025 Claims Sector review here