The Financial Conduct Authority (FCA) has today 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 was clear, fair and not misleading.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA said:
”Firms must ensure their communications with customers are clear, fair and not misleading. 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.”
Between January 2009 and November 2017 LBGI sent nearly 9 million renewal communications to home insurance customers which included language to the effect that they were receiving a “competitive price” at renewal. 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.
Separately, LBGI informed approximately half a million customers that they would receive a discount based on either their “loyalty”, on the fact they were a “valued customer”, or otherwise on a promotional or discretionary basis, where the described discount was not applied and was never intended to apply. This affected approximately 1.2 million renewals, with approximately 1.5 million communications sent by LGBI. The erroneous discount language was only identified and rectified by LBGI during the course of the FCA’s investigation.
The FCA therefore found that LBGI breached Principle 3 and Principle 7 of the FCA’s Principles for Businesses between 1 January 2009 and 19 November 2017.
The FCA has not established whether individual customer behaviour would have been different had the communications in this case been clear, fair and not misleading. The FCA has not imposed a requirement for LBGI to pay redress to those customers who received a renewal letter that included the claim the renewal premium was ‘competitive’.
LBGI has voluntarily made payments of approximately £13.5 million to customers who received communications that erroneously referred to the application of a discount when none was applied, and this has been taken into account in the assessment of the financial penalty. 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.
In its General Insurance pricing practices market study conducted between 2018 and 2020, the FCA found that, typically, insurance premiums increased each year on renewal as insurers sought to recover any losses that may have been incurred by the insurer offering an introductory discount. The effect of this is that existing policyholders will likely have paid more at renewal than a new customer presenting an equivalent insurance risk unless they shopped around.
Under the FCA’s new rules, which come into effect on 1 January 2022, insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer. The FCA estimates that these measures will save consumers £4.2 billion over 10 years, by removing the loyalty penalty and making the market work better.
