Hastings Insurance Services Ltd (Hastings) (a subsidiary of Insurance Australia Group) has been fined £735,000 by the FSA for not treating customers fairly. The fine is the largest ever imposed on an insurance broking firm. (See: Press Release and Final Notice). As mentioned in previous blogs, (See: FSA Update on Firms’ Progress Towards Achieving the Outcomes of TCF.) the FSA has implemented the TCF initiative to focus firms on treating customers fairly. By the end of March 2008 firms were expected to have had appropriate evidence in place to test whether they are treating their customers fairly. Furthermore, by the December 2008 deadline firms must demonstrate that they are consistently treating customers fairly.
Hastings discovered that, due to internal systems errors during two periods between July and September 2007, inaccurate insurance quotations were given to customers, resulting in some people paying lower premiums than they should have. In response to these errors, Hastings utilised a cancellation clause in the contract to cancel the policies. The cancellations forced Hastings’ customers to take out new insurance at short notice. In many cases, customers were deprived of the prospect of earning any ‘no claims discount’ bonus for the period they were insured. The FSA also noted that affected customers may experience difficulty in obtaining future insurance as they would be obliged to declare that they have had a policy cancelled.
The FSA found that, in cancelling the policies, Hastings failed to give sufficient consideration to other possible solutions, such as paying the premium shortfall to the insurance provider. Further, Hastings cancelled the policies using a cancellation clause that was not intended to be used in the circumstances with which it was faced. According to the FSA, such clauses are generally used where customers fail to disclose material facts that would affect the insurance. The FSA also noted further failings in the way in which Hastings handled customer complaints.
The FSA considered that Hastings’ conduct showed that the firm was focused on the financial costs to itself and that it did not give proper consideration to the effects of its actions on its customers. Furthermore, the FSA considered that the steps taken by Hastings demonstrated that the fair treatment of customers was not central to the culture of the firm.The fine would have been £1,050,000 had Hastings not agreed to settle the case at an early stage, write to its affected customers and review the compensation it had offered them.
It appears that the FSA is taking a stringent approach to those firms who are not taking the TCF initiative seriously. This fine should be a lesson to other firms of the importance the FSA is placing on the principle of treating customers fairly and the enforcement of the TCF initiative.
