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FCA takes action against general insurance mis-selling

  • 22/07/2016
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FCA takes action against general insurance mis-selling
General insurance firms have come under fire for failing to monitor advisers’ actions which put customers at risk of mis-selling, causing the regulator to take steps against five companies.

During a review of the general insurance sector, the Financial Conduct Authority (FCA) found significant shortcomings in the control and oversight of appointed representatives (AR) by their principal firms.

Instances of potential mis-selling, which would place the customer in a worse financial position because of the actions of ARs, were found in a third of the principal firms investigated as part of the thematic review.

After visiting 15 principal firms, the regulator found cases where customers had bought products they may not have needed, or would not be eligible to claim under, and instances were customers had not been given enough information to make a balanced decision.

Over half of the 15 principal firms in its sample could not consistently demonstrate that they had effective risk management and control frameworks to identify and manage the risks arising from the activities of their ARs.

To address the failings, the FCA has taken action against  five of the firms in the sample. Its measures include investigations into whether customers have been mis-sold products and whether controls within firms are adequate. It has imposed bans on some sales activity and the recruitment of ARs and is assessing whether customers should be compensated.

Jonathan Davidson, director of supervision – retail and authorisations at the FCA, said: “While some principals did have a good understanding of their appointed representatives’ activities and their obligations as principal firms, we found widespread examples of poor practices across the sector. In many cases firms were simply failing to understand and manage the risks arising from their appointed representatives’ activities.

“General insurance is a large and important sector and we are concerned about the potential for customer detriment arising from the lack of oversight of appointed representatives. All principal firms need to consider these findings and look again at their practices.”

The FCA is writing to chief executives of principal firms in the sector to remind them of its expectations and set out what actions firms should take to address the issues raised in the report.

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