Some tenants were required to buy contents cover, breaching FSA and OFT guidelines
The FSA continued its crackdown on the sale of insurance products as Barbon became the latest firm to fall foul of its guidelines.
Two Barbon executives have been suspended after the FSA scrutinised how contents insurance was sold through one of its brands, HomeLet.
Insurance Times understands that action against other property brokers could follow, as the FSA, scared by the payment protection insurance debacle, works around the clock on ensuring a fair sale of insurance products.
The regulator is talking to HomeLet about a clause in some letting agents’ tenancy contracts requiring tenants to buy contents insurance.
The clause breaches FSA and Office of Fair Trading (OFT) guidelines, which state that a tenant cannot be asked to buy their own contents insurance but can be asked to buy insurance that covers their landlord’s possessions.
The issue was first raised by the OFT in 2005, but the FSA only sprang into action after an unnamed insurance broker blew the whistle by informing the FSA that it had been involved in the practice.
HomeLet managing director John Boyle’s directorship has been terminated, according to Companies House filings. No explanation has yet been given for this development.
A HomeLet spokesman declined to reveal which executives were suspended but said: “HomeLet is involved in a review process that may lead to policyholders with tenants’ contents policies being contacted about how such contracts were purchased.
“This is a thorough process to ensure it meets the company’s required standards. HomeLet continues to provide insurance products and services to existing and new customers.”
The FSA and OFT are working closely together across the industry in a determined effort to ensure that customers know exactly what they are buying and, in particular, that they clearly understand whether the purchase is voluntary or mandatory.
The regulators also want customers to have reasonable chance of succeeding in a claim.
Products and services under the microscope include legal expenses, warranty cover and ID theft, third-party vehicle repairs and credit hire replacement vehicles to motor accident claimants.
A number of companies have been affected by the FSA’s clampdown, or even the threat of action.
HomeServe was forced to suspend mail marketing and taking new customer calls in October after an internal review found it had been mis-selling policies. The FSA is in close contact with HomeServe.
Credit card insurer CPP has been under FSA investigation since March last year for what it has described as “failings in sales calls with customers”.
● The OFT issued its guidelines in 2005, so why has it taken so long for letting agents to toe the line and for the FSA to take notice?
● Have other brokers suspended staff over the issue?
● Brokers distribute other lines of insurance through wider networks and are responsible for making sure these meet FSA guidance - are there other examples of this sort of breach?
Which other brokers are involved?
The FSA has been tight-lipped about this, but Insurance Times understands that several other brokers are being consulted and that it was common practice for letting agents to ask their customers to buy their own contents insurance.
A recent FSA case study for a single unnamed property broker showed that around 25 of its top 50 letting agents with the highest levels of new tenant’s contents insurance sales had “unfairly” asked tenants to insure their own possessions and that a “significant number” of other letting agents had done so.
What will happen next?
That depends on how the FSA and OFT treat the issue. There is currently no suggestion that contents insurance has been mis-sold. The regulator is talking to brokers about the issue and has not disciplined any broker involved. However, the regulator could potentially ask for brokers to refund policyholders.