I hate to say I told you so but… It’s a couple of months since I first warned that the Financial Conduct Authority was putting the sale of add-on products under the spotlight and promising to come down hard on any business found flouting the rules in selling them. Well the first salvo has been well and truly fired.
Last month, it hit high street broker Swinton with a £7.4 million fine, having found the broker guilty of mis-selling monthly add-on insurance policies and condemned the firm for prioritising profit over treating customers fairly.
The FCA gave Swinton a “4 out of 5 rating in terms of the seriousness of the breach”, so perhaps it’s no surprise that the resulting fine is the largest ever to date for a UK insurance broker. It’s probably no accident that the FCA went after this big fish first. It’s equally safe to assume that Swinton won’t be the last to get caught in this particular net.
So what did Swinton do wrong?
Between April 2010 and April 2012 Swinton sold personal accident, home emergency and motor breakdown policies to customers, earning some £93 million in the process. However according to the FCA, Swinton had not made it clear that these policies were optional extras, separate from the core cover being sold.
The investigation found that in 24 of 26 sales, the sales executives did not disclose information about the limitations and exclusions before customers agreed to buy. In 96% of sales, they failed to provide clear information on how and when customers should cancel to avoid the monthly policies continuing at the end of the free period.
This mammoth fine should serve as a wake-up all intermediaries. The next time the FCA finds evidence of wrong-doing – particularly if it finds that a firm’s whole culture is wrong and is persistently not listening to the regulator – it could well seek to shut them down as a further high profile example to the rest of the industry.
The Halo effect and other unintended consequences
We’ve already seen what happened in the case of PPI. How a high profile scandal can result in a whole product class being unfairly tarred with the same brush. As a consequence of that on-going debacle, a set of perfectly legitimate and useful income and mortgage protection products have become tainted. Brokers have become reluctant to even raise the topic with their clients.
My fear is that there is a danger that intermediaries will be now become scared of making add-on sales, losing a valuable income stream needlessly, and also leaving their customers worse off in the long-run.
There’s nothing to fear but fear itself… and sloppiness
As ever, Intermediaries can successfully continue to provide their customers with add-on products so long as they stick to a compliant sales process in line with the FCA’s rules. All this really boils down to is remembering to:
- Establish the customer’s individual needs and requirements as well as their current levels of insurance cover to ensure the proposed add-on is suitable
- Provide detailed information on limitations and exclusions and ensuring the customer understands their cancellation rights to ensure the customer can make an informed decision
Obvious right? Most of us genuinely care about our customers and the principles of TCF run through the core of our businesses. Let’s not allow the rogue activities of the minority deny us the opportunity to continue to profit by providing our customers with these valuable products.
Kevin Paterson is managing director of Source Insurance (twitter: @sourceinsurance)