What Happens If Your Insurer Goes Bust UK 2026

Last reviewed: 26 April 2026

Why motor insurance is a compulsory-cover category

Motor insurance is compulsory under the Road Traffic Act 1988, section 143, making it a legally-mandated product rather than a voluntary consumer choice. This compulsory status is directly relevant to the FSCS protection framework: the FSCS provides more comprehensive protection for compulsory insurance products than for voluntary insurance products.

For compulsory motor insurance, the FSCS covers 90 percent of the claim value with no upper limit. For voluntary add-ons (breakdown cover, personal possessions cover, key cover) that are sold alongside but separate from the compulsory motor insurance, the FSCS protection applies at 90 percent up to an £85,000 per-firm limit.

This distinction means that where a UK motor insurer becomes insolvent during a period when the policyholder has an active claim for a road traffic accident injury, a claim potentially worth hundreds of thousands of pounds in personal injury compensation, the FSCS covers 90 percent of that claim value with no ceiling. The policyholder is not left personally liable for the uncompensated 10 percent of very large claims in practice, because the FSCS's no-upper-limit protection for compulsory insurance is designed for exactly this scenario.

What happens to your active policy when an insurer fails

When an FCA-authorised UK motor insurer enters insolvency proceedings, the FCA and the insolvency practitioner appointed to manage the firm's affairs work together to protect policyholders. The priority is ensuring that active policyholders maintain valid motor insurance, because the RTA 1988 obligation continues regardless of the insurer's financial status.

The typical outcomes for active policies: the insolvency administrator arranges a portfolio transfer, where all active policies are transferred to another FCA-authorised insurer who continues coverage on the same terms until the policy's natural expiry or renewal. Where a portfolio transfer is not possible, FSCS manages a continuation arrangement, contacting all affected policyholders to arrange substitute coverage.

In either case, the policyholder's active motor insurance coverage should be maintained without interruption. The DVLA's CIE programme and MID database are updated to reflect the new insurer following any portfolio transfer. Policyholders do not need to take any immediate action, the FSCS and insolvency administrator manage the process.

What happens to active claims during insolvency

Where a policyholder has an outstanding claim at the time of insolvency, a claim submitted but not yet settled, the FSCS takes over the claim settlement function. The FSCS pays the claim directly under its 90 percent compulsory-cover protection.

The claim settlement process under FSCS may take longer than a standard insurer settlement because the FSCS must verify the claim validity and calculate the appropriate settlement under its protection framework. Policyholders with active claims should notify FSCS of their claim status when contacted following the insolvency event. Retain all claim documentation, correspondence, repair estimates, adjuster reports, as evidence for the FSCS claim process.

Historical UK motor insurer insolvency events

UK motor insurance has experienced a small number of insurer insolvency events in recent decades. GoSkippy, Drive Like A Girl, and Sabre Insurance are among the brands associated with portfolio events in the UK personal motor insurance market, in some cases these were not full insolvencies but rather strategic portfolio exits managed through FCA supervision.

Where a portfolio exit occurs, an insurer deciding to exit a market and transferring policies rather than renewing them, the process is orderly and fully supervised. Policyholders are notified and offered substitute coverage. This is different from the sudden insolvency scenario but produces a similar practical outcome: policies transferred, policyholders contacted, coverage continued.

What consumers should do when their insurer fails

The key practical guidance: do not immediately cancel the policy. Wait for correspondence from FSCS and the insolvency administrator. Maintain payment of premiums as instructed, cancelling prematurely may create a gap in cover. Check the MID at askmid.com to confirm whether your vehicle remains registered as insured during the transition.

If the DVLA's CIE programme issues an advisory letter during the insolvency transition period, because the MID update lags the portfolio transfer, contact FSCS directly to confirm your coverage status and provide the reference to DVLA.

Key Figures

How to confirm your coverage status and protect yourself proactively

Where news reports or FCA announcements indicate that a motor insurer is in financial difficulty, before any formal insolvency is confirmed, there are proactive steps policyholders can take to protect their position.

Check the FCA Register at register.fca.org.uk for the insurer's current authorisation status. Where the FCA has imposed requirements on the firm (which appear on the Register), this may be an early indicator of financial difficulty. Check askmid.com to confirm the vehicle's current MID registration status.

Renewing with a different insurer at the next renewal is a practical risk-management step. Under CIDRA 2012, a policyholder can legitimately decide not to renew with any insurer for any reason, including risk-aversion about the insurer's financial position. ABI guidance confirms that consumers are entitled to shop the market at renewal and are not obligated to renew with the incumbent insurer.

BIBA-registered specialist brokers (biba.org.uk/find-insurance/) can identify alternative insurers quickly where a consumer wishes to move away from a financially uncertain insurer before formal insolvency occurs.

DVLA obligations continue through insolvency

Where a motor insurer enters insolvency and policies are transferred or managed by FSCS, the vehicle's DVLA registration obligations continue unchanged. The V5C registered keeper remains responsible for ensuring continuous valid insurance, DVLA does not grant exemptions from the CIE enforcement programme on the basis of insurer insolvency.

Where DVLA issues a CIE advisory letter during an insolvency transition period, because the MID update following a portfolio transfer has not yet registered, retain the advisory letter as evidence and contact the FSCS or the new insurer handling the portfolio to confirm the MID update. Present the MID confirmation reference to DVLA to resolve the advisory.

The DVLA does not directly participate in insurer insolvency proceedings, its role is to maintain accurate vehicle and keeper records and enforce the insurance requirement via the CIE programme. The DVLA's function continues independently of the insolvency process.

Frequently Asked Questions

Does the FSCS protect me if my car insurer goes bust?

Yes. The FSCS covers 90 percent of compulsory motor insurance claim value with no upper limit. Active policies are typically transferred to another insurer or FSCS-managed continuation, coverage should not lapse.

Do I need to do anything if my insurer goes insolvent?

Do not immediately cancel the policy. Wait for FSCS and insolvency administrator correspondence. Check MID status at askmid.com. If you have an active claim, notify FSCS when contacted. The FSCS manages the process, policyholders do not need to take immediate action.

What happens to my outstanding claim if my insurer goes bust?

FSCS takes over the claim settlement function and pays 90 percent of the claim value with no upper limit for compulsory motor insurance. The settlement process may take longer than a standard insurer settlement. Retain all claim documentation as evidence.

Will I still be insured if my insurer goes bust?

Your active policy should be maintained through either a portfolio transfer to another insurer or FSCS-managed continuation. The RTA 1988 section 143 obligation continues, the FSCS and insolvency process are specifically designed to maintain valid coverage for policyholders throughout.

Is the FSCS the same as the FCA?

No. The FCA is the regulator that authorises and supervises insurance firms. The FSCS is the statutory compensation scheme that pays out when an FCA-authorised firm becomes insolvent. They are different bodies with different functions.

Sources & Verification

• Financial Services Compensation Scheme: https://www.fscs.org.uk
• FCA, insolvency supervision: https://www.fca.org.uk
• ABI Motor Insurance data: https://www.abi.org.uk
• Road Traffic Act 1988, section 143: https://www.legislation.gov.uk/ukpga/1988/52
• Motor Insurers' Bureau, AskMID: https://www.askmid.com
• HMRC Insurance Premium Tax: https://www.gov.uk/guidance/insurance-premium-tax
• BIBA, Find a specialist broker: https://www.biba.org.uk/find-insurance/

This article is for informational purposes only and does not constitute financial advice. Always verify rates with official sources before making any financial decision.