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Swinton £7.38 million fine calls into question insurance policy add-ons

Swinton Group Limited (Swinton), one of the UK’s largest insurance retailers, has been fined £7.38 million by the Financial Conduct Authority (FCA) after it was found to have used aggressive telephone sales strategies and, therefore, failed to treat customers fairly. The fine could have been worse; Swinton agreed to settle with the FCA at an early stage of the investigation and, therefore, qualified for a 30% (Stage 1) discount. Had it not been for this discount, the financial penalty would have been in excess of £10 million!

The FCA decision notice confirms that the breaches caused a significant loss or risk of loss to individual consumers. During the period investigated, over 2.3 million monthly policies were sold and the FCA confirmed that the systemic nature of the failings meant there was a risk that every one of those sales may have been a mis-sale. It is likely, therefore, that a significant proportion of Swinton customers may have suffered loss. Although Swinton is unable to identify the total number of affected customers, it has issued over 650,000 letters to customers who may potentially be affected.

Every one of these sales could have been mis-sold

During the investigation period, between April 2010 and April 2012, Swinton sold personal accident, home emergency and motor breakdown policies, it is on these products and the ‘add-on features’ (products sold alongside or on the back of ‘primary products’) that the FCA found that Swinton did not provide enough information to customers about the key terms of the policies; customers should have received key terms information which included the conditions, limitations and cancellation processes. Swinton also failed to properly monitor its sales calls. Matters were compounded as the optional nature of the add-ons may not have been clear. The FCA found that the nature of the failings, particularly poor sales scripts, meant that every one of these sales could have been mis-sold.

How much redress is due to be paid resulting from mis-selling?

Swinton has set aside £11.2 million to repay those customers who were mis-sold and £1.9 million of this amount has already been paid out. Swinton has contacted over 650,000 customers it thinks may have been affected.

The future of add-ons!

The FCA has confirmed that its first market study is looking at the practice of selling insurance add-ons with various purchases including financial services products, cars or mobile phones. The study shows the FCA has been quick to use its new competition powers which means this regulator will not have to wait for problems to materialise, but will look to proactively promote competition by assessing whether or not competition is effective. The importance of the timing of this study is significant considering the fact that the FCA has only just reported on the first 100 days since it was formally incorporated. The FCA is calling for evidence by 10 September 2013 and will report its conclusions and recommendation early in 2014.

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