FSA-scrutinised Barbon sets aside £2.5m for customer compensation after contents insurance breach

Pensions Insight

Barbon Insurance Group has plunged into a £547,000 loss after setting aside £2.5m customer compensation following a sales blunder, Insurance Times can reveal today.

Insurance Times has previously reported that two Barbon executives had been suspended earlier this year after the FSA scrutinised how contents insurance was sold through one of its brands, HomeLet.

HomeLet’s letting agents had clauses in their tenancy agreements that meant tenants were compelled to take out contents insurance for their own possessions, when in fact, it was voluntary.

Barbon Insurance Group’s 2011 accounts reveal a £2.5m provision for ‘potential redress’ for the customer and also the cost of the review, which is being watched closely by the FSA.

The accounts say: “The company is currently subject to a review whereby it is contacting customers in respect of past product sales.

“The group has established a provision for the estimated cost of this review and including potential redress payments to customers in respect of those past sales.”

A Barbon spokesman said: “It relates to a review process which has led to HomeLet’s policyholders with tenants contents policies being contacted about how such contracts were purchased.”

The spokesman added that Barbon was in “regular and constructive” dialogue with the FSA. The Barbon spokesman said enough money had now been set aside to cover customer redress and the cost of the review.

Profit margins wiped out

The one of cost associated with the sales blunder helped push Barbon into a £547,000 pre-tax loss in 2011, from a £7.8m profit in 2010.

Administration expenses shot up to £32.2m from £24.7m.  Staff costs increased to £20.7m from £19.1m.

In 2010, Barbon was making a healthy 23.3% pre-tax profit margin but all of that has been wiped out by administration costs.

On a positive note, Barbon’s turnover rose to £35.1m from £33.4m.