Release Date: 12th February 2014
To access the original FCA document, click here.
Summary
HomeServe Membership Limited, an insurance intermediary specialising in home emergency and repair cover, has been fined £30,647,400 by the Financial Conduct Authority (FCA). This marks the largest ever retail fine issued by the FCA, reflecting serious, systemic, and prolonged failures within the company from January 2005 to October 2011. HomeServe’s failings include mis-selling insurance policies, inadequate complaint investigation procedures, a lack of board engagement with compliance issues, and a senior management reluctance to address customer risks when costs were involved.
The investigation uncovered that HomeServe’s rapid business growth fostered a profit-driven culture prioritising sales targets over customer interests, often exploiting existing customers. These practices led to approximately £12.9 million in customer redress, with total expected payouts nearing £16.8 million. Tracey McDermott, the FCA’s director of enforcement and financial crime, highlighted the case as a severe example of a firm neglecting customer needs over an extended period. McDermott emphasised that the financial services industry must place customer interests at its core to regain trust and integrity.
The FCA identified breaches of several of its Principles of Business:
- Principle 3 (Management and Control): HomeServe failed to address compliance issues adequately, such as mis-selling and the impact of its IT system flaws, which led to customer overcharging and duplicate coverage.
- Principle 6 (Customers’ Interests): The company inadequately resolved complaints and often did not provide appropriate redress, such as covering costs for services that HomeServe itself should have provided.
- Principle 7 (Communications with Clients): HomeServe did not communicate clearly in sales calls, resulting in the mis-selling of insurance policies to 69,000 customers by failing to adequately explain price and coverage details.
These failings were particularly concerning given the vulnerability of a significant portion of HomeServe’s customer base, many of whom were retirees. HomeServe has since made efforts to amend its practices and improve its focus on customer welfare. The firm settled early in the investigation, receiving a 30% discount on the fine, which otherwise would have amounted to £43,782,058.
Key takeaways for other firms include
- The crucial need for a customer-centric business approach.
- Rigorous compliance with regulatory standards.
- Effective management oversight.
- Proactive addressing of any practices that could adversely affect customers.
This case serves as a stark reminder of the financial and reputational risks associated with neglecting these areas.
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