FCA Fines LBGI £90m for Misleading Customers

The FCA has issued a £90 million fine – its biggest since 2019 – to LBGI (Lloyds Bank General Insurance Limited, St Andrew’s Insurance Plc, Lloyds Bank Insurance Services Limited and Halifax General Insurance Services Limited). The fine was for a failure to ensure that language contained within millions of home insurance renewals communications was clear, fair and not misleading.

Between January 2009 and November 2017, roughly 9 million renewal communications to home insurance customers included an unsubstantiated claim that they were receiving a ‘competitive price’ at renewal. LBGI did not take the necessary steps to check that this was accurate, and policies were renewed in around 87% of renewal communications containing this wording.

Though the wording was rewritten by LBGI and it began to remove the ‘competitive pricing’ wording, the language was still contained in many renewal communications.

As a result, there was a risk of harm for many of LBGI’s home insurance customers who received these communications as it was likely that the premium quoted to them at renewal would have increased when compared to their prior premium.

Approximately half a million customers were informed by LBGI that they would receive a discount based on their ‘loyalty’, being ‘valued customer’, or otherwise on a promotional/discretionary basis. However, the described discount was not applied and was never intended to apply. The incorrect language around discounts was only identified and rectified by LBGI during the regulator’s investigation.

Executive Director of Enforcement and Market Oversight at the FCA, Mark Steward, 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.”

The FCA found that LBGI had ultimately breached Principle 3 and Principle 7 of its Principles for Businesses, which are:

  • Principle 3 – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
  • Principle 7 – A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

The FCA has recently released its General Insurance Pricing Practices market study which found that insurance premiums generally increased each year on renewal as insurers sought to recover any losses that may have been incurred by the insurer offering an introductory discount. Policyholders will therefore likely have paid more at renewal than a new customer presenting an equivalent risk would have, unless they shopped around. This practice is known as ‘price-walking’.

On 1 January 2022, the pricing and auto-renewal rules will come into effect after which insurers will be required to offer renewing customers a price that is no higher than what they would pay as a new customer. These measures, its predicted, will save customers £4.2 billion over 10 years, by removing the loyalty penalty and ensuring that the market works better.

About the author

Kirk joined RWA in 2015, having worked in the financial services sector for many years. He started out in both the general insurance and mortgage advice arms of HSBC, before becoming the Compliance Officer at Go Compare and Training & Competence Manager at Optimum Credit. 

At RWA, Kirk is Deputy Head of Compliance. He supports RWA clients by looking after their compliance, training and competence needs and keeping them up to date with regulatory changes. He promotes the achievement of fair customer outcomes and specialises in designing and implementing T&C schemes for firms of all sizes.

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