Context
The FCA has fined LBGI (Lloyds Bank General Insurance Limited, St Andrew’s Insurance Plc, Lloyds Bank Insurance Services Limited and Halifax General Insurance Services Limited) £90,688,400 for failing to ensure that language contained within millions of home insurance renewals communications issued between 2009 and 2017 was in line with regulatory expectations for customer communications. The FCA said that firms must ensure their communications with customers are clear, fair and not misleading and that LBGI failed to ensure that this was the case. Millions of customers ended up receiving renewal letters that claimed customers were being quoted a competitive price which was unsubstantiated and risked serious consumer harm. The FCA therefore found that LBGI breached Principle 3 and Principle 7 of the FCA’s Principles for Businesses between 1st January 2009 and 19th November 2017.
Key points to note
- LBGI did not substantiate the ‘competitive price’ language included in the renewal communications by taking steps to check that it was accurate. Policies were renewed in respect of approximately 87% of renewal communications containing this language.
- Although LBGI rewrote its renewal communications and began to remove ‘competitive price’ wording from 2009 onwards, the language remained in a substantial number of renewals communications throughout the Relevant Period despite repeated missed opportunities to address it.
- This caused a risk of harm for the majority of LBGI’s home insurance customers who received these communications, because it was likely that the premium quoted to them at renewal would have increased when compared to their prior premium.
- Renewal premiums offered to customers would also likely have been higher than the premium quoted to new customers, or customers that chose to switch insurance provider. This was particularly likely to be the case for customers who renewed repeatedly.
- Due to a computer coding error other customers (approximately 1.2 million renewals, with approximately 1.5 million communications )were told they were getting a loyalty or valued customer discount when this wasn’t necessarily the case.
- Although there is not a formal redress plan LBGI is conducting a “voluntary payment process” to customers under FCA engagement which has so far paid out £13.5m.
- LBGI is contacting customers proactively, meaning customers do not have to take any steps to receive payment. The FCA continues to engage with LBGI on the voluntary payments process.
- The size of the fine reflects the number of customers involved – some nine million renewal communications.
- The circumstances of this case tie in with the pricing practices work as these customers were content to renew at higher prices and not shop around because they believed from the language used by LBGI that they were getting a good deal. Also, themes from this case are echoed in the FCA’s Consumer Duty consultation.
Next actions
This enforcement case brings into sharp focus many of the messages in the FCA’s pricing and Consumer Duty work. Firms should use the details of the failings and harms that the FCA has set out above and view them alongside the FCA’s new pricing remedy requirements and its vision for the Consumer Duty.