The Financial Services Authority (FSA) has fined
Combined Insurance Company of America (CICA) £2.8 million for failing to embed
fully a culture that ensured its customers were treated fairly. CICA has agreed
to carry out a review of past business to identify any customer detriment and
CICA sold accident and sickness insurance
products via self-employed sales agents.
During the period investigated by the FSA (1 April 2008 to 26 October
2010) CICA had 542,133 policyholders and received £47 million in premiums for
new policies sold. Its customers were
typically self-employed, small business owners or manual workers.
In August 2010, as a result of concerns the FSA
had about CICA’s business, the FSA required the firm to undertake a skilled
persons (Section 166) report to examine CICA’s governance and controls
framework. The firm subsequently agreed
to cease writing any new business from 26 October 2010.
The FSA found that CICA breached FSA Principle 3
(management and control) and Principle 6 (customers’ interests) by failing to
manage effectively its sales processes, claims handling and complaints handling
to ensure the fair treatment of its customers.
The FSA identified systemic failings across much of CICA’s
business. In particular:
- CICA’s recruitment procedures focused on the
quantity rather than the quality of recruits.
There were no minimum qualification requirements for agents and
employment references were not always obtained
- CICA did not have adequate systems and controls
to ensure that its sales agents had the necessary skills and knowledge to
provide suitable advice
- CICA did not ensure that its sales agents
recorded all relevant information when advising customers on the suitability of
- The remuneration structure for the sales force
was high-risk with agents paid on a commission-only basis, based on sales
volumes with insufficient emphasis on the quality of sales
- CICA failed to take consistent and effective
action against sales agents who were subject to customer complaints or who had
breached company rules
- CICA did not put in place adequate controls to
monitor its claims handling process
- Aspects of CICA’s complaints handling
procedure and the accompanying systems and controls were inadequate.
CICA settled early with the FSA and received a 30% discount on its
fine. Without the settlement discount
the fine would have been £4 million.
Income protection insurance news: 13 January 2012