FCA report details the third party outsourcing failings behind Liberty fine

The “systematic weaknesses” in Liberty’s management of a third party that lead to its £5.3m fine has been laid out in detail by the FCA.

The FCA picked out five separate instances of unfair practices in how Liberty’s 2.6m mobile phone insurance customers between July 2010 and June 2015 were treated in regards to claims and complaints.

Through the third party, which Liberty assigned to undertake all administrative functions of its mobile phone insurance business from 2010, the FCA found the following:

-          Around 6,000 customers between June 2012 and February 2015 were unfairly denied cover for claims for loss or theft if they had failed to download and install a Mobile Rescue App. Only 38% of customers had downloaded the app in August 2014, and the Financial Ombudsman Service had described this requirement as “onerous.”

-          A proportion of the 3,171 claims declined up to December 2015 due to suspicion of fraud lacked enough evidence to support the suspicion. The use of voice analytics software was identified has having potentially caused unfair outcomes in this respect. Where suspected fraud was the reason for rejecting the claim, this was not always communicated to the customer.

-          Around 1,700 customers were unfairly denied cover through the inappropriate use of a policy exclusion for unattended loss, which existed between July 2010 and December 2015.

-          A great majority of the 1,627 customers who complained about denial of cover due to late notification, or for failing to install the Mobile Rescue App had the original decision overturned. An internal review in June 2014 found of customers that complained, 90% had the decision overturned.

-          Around 11,000 customers who complained were at risk of having their complaints dismissed without a proper investigation.

Responsibility

While accepting Liberty took no significant financial benefit, the FCA highlighted that the insurer retained primary responsibility for ensuring the outsourced claims and complaints handling complied with regulatory requirements.

An FCA statement read: “Liberty did not undertake an adequate risk assessment, review or adequately plan for ongoing monitoring before the commencement of the arrangement to ensure that the third party would administer claims and complaints on Liberty’s behalf in a way which would ensure that Liberty complied with its regulatory obligations.”

Liberty’s audit committee was delegated to oversee the third party. However, the FCA said while Liberty’s senior management did identify the compliance risks, it delegated oversight “to a function that lacked the resources and expertise to understand the nature of the risks and what would be needed to mitigate them.”

The FCA said Liberty only looked in more detail at the third party following the FCA’s thematic review into mobile phone insurance, published in June 2013.

Through a series of internal reviews over the next two years Liberty gradually rectified the issues revealed, and offered remediation of around £4m to 14,000 customers.

Fine

The FCA reached its fine of £5.3m based on the taking 10% of the mobile phone insurance businesses’ GWP for the period of around £83.8m.

Deductions were subsequently made for mitigating factors like Liberty’s efforts to remunerate customers and rectify the compliance issues.

Liberty had never underwritten in the mobile phone insurance market before its entry in 2010. The third party had experience in the US mobile phone insurance sector and had previously dealt with Liberty’s parent company.

Liberty grew its mobile phone insurance customers from 40,000 in February 2011 to 1.3m by June 2015, but has since ceased underwriting new mobile phone policies.