Home insurance customers were told they were receiving a ‘competitive price’ or ‘discount’ for loyalty at renewal, however this language was not substantiated
The FCA has fined LBGI – which includes Lloyds Bank General Insurance Limited, St Andrew’s Insurance PLC, Lloyds Bank Insurance Services Limited and Halifax General Insurance Services Limited – a total of £90,688,400 for sending home insurance customers unclear and misleading communications at renewal between 2009 and 2017.
According to an investigation by the FCA, between January 2009 and November 2017, LBGI sent nearly nine million renewal communications to home insurance customers stating that they would receive a “competitive price” for their cover at renewal. Following this communication, around 87% of policies were renewed.
However, the FCA found that LBGI did not substantiate this language or check that assertions around competitiveness were correct.
LBGI rewrote its renewal communications and removed the “competitive price” phrase from 2009 onwards – but the term remained in “a substantial number of renewals communications throughout the relevant period, despite repeated missed opportunities to address it”, the FCA noted.
The FCA believes this action caused a risk of harm to the majority of LBGI’s home insurance customers as due to historic price walking practices – which the regulator is striving to solve within its general insurance pricing reforms this year - it was likely that the premium quoted to customers at renewal would have increased when compared to their prior premium. It is also likely that the quoted premium would have been higher than the one supplied to new customers.
In addition, the FCA revealed that LBGI informed approximately half a million customers that they would receive a discount based on either their “loyalty”, the fact they were a “valued customer”, or on a promotional or discretionary basis – the regulator found that “the described discount was not applied and was never intended to apply”, however.
With 1.5 million of these types of communications sent out by LGBI, around 1.2 million renewals were affected.
“The erroneous discount language was only identified and rectified by LBGI during the course of the FCA’s investigation,” the regulator added.
Serious consumer harm
Following its investigation, the FCA declared that LBGI breached Principle 3 and Principle 7 of the FCA’s Principles for Businesses between 1 January 2009 and 19 November 2017, which has led to the fine of just over £90m.
Taking the bull by the horns, LBGI has voluntarily made payments of approximately £13.5m to 350,000 customers who received communications referring to the application of a discount when none was given - this has been taken into account in the assessment of the financial penalty issued.
Furthermore, LBGI is ensuring to contact customers proactively, meaning consumers do not have to take any additional steps to receive a payment.
The FCA does not require LBGI to pay redress to customers who received a renewal letter that claimed the renewal premium was “competitive”.
To date, the FCA has not established whether individual customer behaviour would have been different had LBGI’s renewals communications been “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.”
A Lloyds Banking Group spokesperson added: “We’re sorry that we got this wrong. We’ve written and made payment to those customers affected by the discount issue and they don’t need to take any further action.
“We thank the FCA for bringing this matter to our attention and since then we’ve made significant improvements to our processes and how we communicate with customers.”