The Financial Conduct Authority (FCA) has fined Lloyds Bank General Insurance more than £90m for failing to ensure language within millions of home insurance renewals communications during an eight-year period was ‘clear, fair and not misleading’.
In total the group, which includes Lloyds Bank General Insurance (LBGI), St Andrew’s Insurance, Lloyds Bank Insurance Services and Halifax General Insurance Services has been fined £90,688,400.
According to a statement from the FCA, between January 2009 and November 2017 LBGI sent nearly nine million renewal communications to home insurance customers which included language to the effect that they were receiving a “competitive price” at renewal.
And it highlighted that half a million people were told they would receive a loyalty discount for renewing but never did.
‘Competitive price’ and loyalty bonus
The FCA found LBGI did not substantiate the “competitive price” language included in the renewal communications by taking steps to check that it was accurate and revealed that policies were renewed in respect of roughly 87% of renewal communications containing this language.
While LBGI rewrote its renewal communications and began to remove “competitive price” wording from 2009 onwards, the FCA found that the language remained in a substantial number of renewals communications throughout the relevant period despite repeated missed opportunities to address it.
According to the FCA, this meant there was a risk of harm for most LBGI’s home insurance customers who received these communications, because it was likely that the premium quoted to them at renewal would have increased when compared to their previous premium.
Renewal premiums offered to customers would also likely have been higher than the premium quoted to new customers, or customers that chose to switch insurance provider and this was found to have been particularly likely to be the case for repeat renewal customers, the regulator noted.
Separately, LBGI told roughly half a million customers that they would receive a discount based on either their “loyalty”, on the fact they were a “valued customer”, or otherwise on a promotional or discretionary basis, where the described discount was not applied and was never intended to apply.
This affected approximately 1.2 million renewals, with around 1.5 million communications sent by LGBI. The FCA revealed this “erroneous” discount language was only uncovered and rectified by LBGI during its investigation.
Consequently, the FCA found that LBGI breached Principle 3 and Principle 7 of the FCA’s Principles for Businesses between 1 January 2009 and 19 November 2017.
Voluntary consumer redress
The FCA added it has not established whether individual customer behaviour would have been different had the communications in this case been clear, fair and not misleading and has not imposed a requirement for LBGI to pay redress to those customers who received a renewal letter that included the claim the renewal premium was ‘competitive’.
The FCA further revealed that LBGI had voluntarily paid around £13.5m to customers who received communications that erroneously referred to a discount when none was applied and this was taken into account in the financial penalty.
LBGI is contacting customers proactively, meaning customers do not have to take any steps to receive payment. The FCA continues to engage with LBGI on the voluntary payments process.
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.”
In response a Lloyds Banking Group spokesperson said: “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.”
Under new FCA rules, effective from 1 January 2022, insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer.
The FCA estimates these measures will save consumers £4.2bn over 10 years, by removing the loyalty penalty and making the market work better.