FSA fines Combined Insurance Company of America

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 pay redress.

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 insurance products
  • 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.


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FSA fines Combined Insurance Company of America
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