Posted: 17th October 2013

In summer we felt the tremors of the Financial Conduct Authority’s first two thematic review reports into insurance add-ons. The aftershocks were soon felt when the conduct regulator fined Swinton Group Ltd £7.38m (reduced from £10.5 for early-settlement) for mis-selling car insurance add-on products.

Swinton offered add-on insurance policies to new and existing customers through its inbound and outbound call centres. Products included personal accident cover, home emergency cover and breakdown cover all sold on a rolling monthly basis. The nature of the failings and poor sales scripts meant that “every sale could have been a mis-sale”.

The final notice for Swinton focusses on three failures:

Aggressive sales strategy: Swinton adopted a business strategy aimed at boosting profits at each stage of the process – design, launch and sale. Profit was the focus, not the customer
Failure to give adequate information: Swinton did not explain the cover clearly enough or inform customers that the policies were optional and separate from its core products. Neither did it provide enough information about the policy to allow customers to make an informed decision
Call monitoring: Swinton’s call monitoring for add-on policies was limited in its scope and nature. Swinton did not undertake any effective checks to ensure that customers were provided with adequate and balanced information, and did not assess the fairness of sales

Three questions to keep conduct issues on your radar:

Are there risks in my incentive schemes that could lead to poor customer outcomes? Is my firm monitoring those risks with a suitable plan?

The fine noted that financial incentives for sales advisors were geared heavily towards sales. The incentive was there for advisors to not-disclose the detail of the product.

Is my quality assurance generating MI that gives a true picture of the customer outcome?

To provide assurance that positive customer outcomes are being achieved, robust quality assurance (QA) activity needs to be in place. It should assess the fairness of the customer outcomes for the end-to-end customer journey and at each stage along the way. This enables firms to understand where issues are and to manage or address them appropriately. Call monitoring and post-sale customer contact activity focussed on assessing the entire customer journey provides assurance that sales are being handled fairly and consistently.

What impact is culture having on front line staff?

The Financial Conduct Authority views poor governance and culture as potential root causes of poor customer outcomes and an indicator about how firms are meeting their regulatory obligations. In creating an appropriate culture, firms must focus on factors such as corporate values, strategic objectives, risk appetite and remuneration. Strategies such as cross selling and aggressive sales targets create the potential for conduct risks and customer detriment.

At the Association of British Insurer’s biennial conference this summer it was clear that insurers are focussed on prudential risk legislation. The Financial Conduct Authority, however, is now demanding that insurers’ attention is as equally focussed on conduct.

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