Mis-selling and inadequate compliance by home emergency broker until 2011
Elderly HomeServe customers were taken advantage of in a culture that incentivised sales teams to increase the number of policies they sold regardless of customer needs, and incentivised complaints handlers to close as many complaints as possible, the FCA said today as it confirmed its largest ever retail fine.
The home emergency and repairs broker was fined £30.6m by for “serious, systemic and long-running failings” that spanned from 2005 to 2011.
The regulator found HomeServe mis-sold insurance policies, failed to investigate complaints adequately, and that senior managers were reluctant to address risks to customers “if there was a cost implication involved”.
FCA director of enforcement and financial crime Tracey McDermott said: “HomeServe promises to provide customers with peace of mind when things go wrong. In fact the firm’s culture, controls and remuneration structures meant that staff were focused on quantity not quality and there were customers that paid the price for that.
“This is a serious case, one that has warranted our largest retail conduct fine and generated a sizeable bill for consumer redress.”
The FCA said the failings were particularly serious because a significant proportion of HomeServe’s customers were pensioners and therefore more vulnerable.
In particular HomeServe failed to:
- React to compliance monitoring reports that raised serious concerns about mis-selling
- Ensure that senior management undertook adequate regulatory training, which led to a lack of knowledge and failure to identify and address issues that created a risk that customers may not be treated fairly
- Identify and address an inappropriate remuneration structure for the sales teams which incentivised staff to increase the volume of sales, irrespective of the customer’s need
- Identify and address inappropriate bias in the remuneration structure for complaint handling teams which incentivised staff to close as many complaints as possible and created a risk that customers did not receive appropriate redress
- To have adequate software and carry out effective tests, which meant some customers were overcharged and charged for duplicate cover they did not need.
HomeServe has paid £12.9m to affected customers and is expected to pay a total of £16.8m. It will have contacted all affected customers by the end of March.
HomeServe confirmed last month that it expected the fine and increased its provisions to pay for it and customer redress by £30m.
In a statement issued this morning it pointed out that the procedures covered by the FCA investigation have not been used for over two years, and described them as “historic”.
Chief executive Richard Harpin said: “We sincerely regret that some customers have been affected by these issues. We have transformed the business, rebuilding and strengthening the management team, retraining staff and restructuring systems and controls.
“We have worked very hard over the past two years to put customers back at the heart of our business and we are committed to offering valuable products with a high quality of service.”
HomeServe agreed to settle at an early stage of the investigation and qualified for a 30% discount. Were it not for this discount the fine would have been £43,782,058.
McDermott added: “Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services. True change in the culture within the financial services industry will only be achieved when firms and their management accept and deliver on their responsibility to ensure that customers are treated fairly.”