Combined Insurance Company of America (CICA) had the honour of being the last firm to incur an FSA imposed financial penalty in 2011.
Although CICA’s business is the provision of accident and sickness policies, many of the failings identified in the Final Notice would be relevant to a wider range of firms.
Most, if not all, of the findings have appeared in past Final Notices and include: remuneration by commission, thus concentrating on sales volume rather than quality; inadequate complaints handling, including ineffective use of root cause analysis; and failing to ensure that the necessary skills and knowledge were in place to ensure that customers received suitable advice. With regard to the latter the Final Notice informs us that whilst the induction course included a TCF test it had no pass mark and hence could not be failed. Furthermore the competency assessment was structured such that a candidate could fail all product questions and still pass.
As might be expected with a firm with mainly retail end users, the importance of treating customers fairly (TCF) appears several times (and with para 2.6(3) reminding all that TCF has been an FSA priority since 2004) with a key issue being a failure to embed a TCF culture within the firm.
Firms for which TCF is a relevant issue should note that the financial penalty imposed on CICA was not determined by any customer detriment. Indeed, the Final Notice advises that because of the failings the FSA was concerned that customers may have suffered financial detriment, although it has not made any findings in this regard nor made any findings of customers being sold unsuitable products or suffering detriment – CICA has agreed to an independent review of past business being carried out. In addition such firms should also note from para 6.7 of the Final Notice that the FSA considered that the imposition of a “significant financial penalty” was necessary in order to “… encourage TCF compliant behaviour…” by other firms.
The firm was subject to a financial penalty of £2.8M – it would have been £4M if it had not qualified for the usual Stage 1 30% discount.
