The Financial Services Authority has levied its biggest-ever penalty on an insurance broker by fining a unit of Insurance Australia Group £735,000 for cancelling hundreds of incorrectly priced car insurance policies.
The City watchdog said that in cancelling 4,550 policies, Hastings Insurance Services, part of IAG, had failed to treat its customers fairly.
The FSA said that in two periods between July and September last year, Hastings discovered that because of an internal systems error, inaccurate quotations were given to customers, which resulted in some paying lower premiums.
Hastings cancelled the policies, but in doing so failed to give sufficient consideration to alternatives, such as paying the premium shortfall to the insurance provider, the FSA said.
The insurance broker invoked a cancellation clause that the FSA considered was not generally intended to be used in such circumstances.
The cancellations forced customers to take out new insurance at short notice, the regulator said. In many cases, customers were deprived of the opportunity to earn any “no-claims discount” bonus for the period they were insured. Customers might also experience difficulty in obtaining future insurance as they had had a policy cancelled, the watchdog said.
The service offered by Hastings after the cancellations was also inadequate, the FSA said.
The regulator said the actions showed Hastings “focused on the financial cost to itself and did not properly consider the alternatives or the detrimental effect on customers”.
Hastings said it would write to affected customers explaining that they might be eligible for compensation.
“Whilst Hastings does not consider the use of a cancellation clause is of itself unfair, it does accept that in this instance these particular processes and procedures could have been better and has acted quickly to rectify them,” the broker said.
“Hastings is pleased the FSA has acknowledged the breach was not deliberate. The company has taken substantial remedial action in relation to its systems and management.”