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FCA hits insurance broker with £30m fine over misselling

The FCA has issued its largest ever retail fine of £30.6m to insurance broker HomeServe for misselling policies and not investigating complaints.

In its final notice, the regulator found serious, systemic and long running failings, extending across many key aspects of its business. 

HomeServe has already paid out £12.9m in redress with an expected £16.8m more to come.

Between January 2005 and October 2011 it mis-sold insurance policies and failed to investigate complaints adequately. The FCA says the firm’s board was insufficiently engaged with compliance matters while senior management were reluctant to address risks to customers if there was a cost implication involved.

HomeServe sells home emergency and repairs insurance cover.  The FCA says the firm developed a “profit driven culture” and it was “taking advantage” of customers.

FCA director of enforcement Tracey McDermott says: “Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services.

“True change in the culture within the financial services industry will only be achieved when firms and their management accept and deliver on their responsibility to ensure that customers are treated fairly.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Derek Bradley ceo Panacea Adviser 13th February 2014 at 9:27 am

    Interesting.

    In September 2011 we highlighted the fact that this firm would be a likely regulatory target. http://bit.ly/1cyq1Kp

    Regulation, despite its many failings, exists to protect consumers from the effects of bad advice, miss-selling of unsuitable products and sometimes even miss-buying.

    IFAs and product providers have for years been used to the responsibilities of regulation and have seen, sadly, over the years various miss-selling scandals come to light that does the industry no favours.

    The most recent example is PPI miss-selling by banks in particular, resulting in huge accounting provisions being made by those banks to settle claims made where a consumer has been sold a product that is just not suitable.

    In 2011 I asked “what will the next miss-selling scandal be”?

    I thought it may well be Extended Warranty insurance and although not being a product that sits on an IFAs shelf, it is an insurance product and the firms that either offer or sell it are regulated.

    The scale of the potential miss-selling could frankly be enormous based on my experience.

    Having moved house in 2011, my wife embarked on a very lengthy process of registering the warranties for the numerous appliances that came with the property. This included the normal array of ‘White Goods’ plus ovens, hob, microwaves, showers, waste disposal etc.

    The warranty registration process was dealt with on this occasion by Homeserve on behalf of the various appliance manufacturers involved. Registering the product was the easy part but what followed, without exception, was simply an attempt to hard sell extended warranty cover. The words ‘no thank you’ did not seem to be understood, in fact the sales pitch was in my wife’s words “pressurized and unpleasant” if you said “no”. Despite all their efforts I am pleased to say that my wife managed to get the warranties registered without succumbing to the sales pitches or getting wound up.

    Fast-forward eight weeks and a call comes through appearing to be from a firm called Aqualisa. Upon further enquiry it became clear that the call was quite a coincidence as we were awaiting an engineer’s visit to deal with a problem with an Aqualisa shower. But the call was in fact from Homeserve and the caller wished to speak with my wife about the fact she had not effected the extended warranty cover and what the consequences could be.

    Most products we buy now have at least a one-year warranty, some two if they abide by EU law and in some cases five years – such as Aqualisa. So with a typical cost of £65 to extend a warranty on say an oven for five years, multiplied by a number of appliances – in our case fifteen, the cost soon gets quite hefty at £960.

    I have no idea what the claims rate is on white goods, but I do know that this type of cover is also offered via many home contents insurance companies as well, such as electricity, gas and water companies and again at a cost.

    So, in the heat of the sales pitch, not once was my wife asked if the equipment was covered elsewhere or if the monthly amount was affordable.

    I was very concerned that the sales processes employed seem to have no regard for cover that may exist elsewhere and is being paid for. In the event of a claim, both companies carrying the risk will not pay out for repair or replacement. In my wife’s case, it is being sold on a premise of ‘fear of the consequences” of breakdown in my view rather than the benefit in the frankly unlikely event of breakdown.

    PPI was a scandal but given the number of products that offer extended warranties, I think the potential for miss-selling this product is even greater. The premiums may be lower than PPI but the number of policies is likely to be so much higher.

    You can insure just about anything these days, but do you need to, or is it already covered and you do not know it? Controls need to be looked at by the FCA as a matter of some urgency before the ambulance chasers pick up the trail.

    A fine is one thing, compensation is quite another.

    As a footnote, we were asked by an agency to remove all references on our site to this firm late last year, we asked why and got no answer.

    I think we now know why.

  2. Derek – my experience only some two weeks ago when registering a new tumble drier for it’s one year guarantee, exactly replicated that of your wife – it would seem nothing has been learned by these providers.

    And this despite my saying that I was a compliance officer in financial services acted as no deterrent to their “you must be stupid not to buy this extended warranty” approach throughout the conversation.

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