Liberty Mutual has been fined £5.2m over its botched handling of mobile phone insurance claims and complaints.
The insurer used a third party to handle these, but according to a Financial Conduct Authority report, failed to put adequate systems and controls in place to monitor its activities between 2010 and 2016.
Around 11,000 customers were said to be at risk of finding their complaints dismissed without any proper investigation or were at risk of complaints not being handled “fairly”, owing to inadequate processes, an FCA final decision notice said.
While the agreement was in place, around 6000 customers were allegedly denied cover for loss or theft claims if they had not downloaded an app.
Some customers found their claims denied without being “investigated adequately” between 2012 and 2015, the FCA said, as there was an “over reliance” on voice analytics software. Other claims were said to be denied despite there being “insufficient evidence” that they were fraudulent.
Between 2010 and 2015, around 1707 Liberty customers found themselves “unfairly” denied cover, owing to the use of a policy exclusion for unattended loss, the FCA report claimed.
In addition, a majority of customers who complained about being denied cover for late notification or because they had not downloaded an app found the decision overturned. This was “creating a de facto two stage claims process, which risked causing unfair outcomes for customers”.
The report added: “It is not acceptable for an insurer to permit a third party to design and administer insurance of this nature, and settle claims and handle complaints on its behalf, without first having in place clear and adequate systems and controls to ensure that the outsourced processes of the third party comply with the relevant regulatory requirements, including as regards claims and complaints handling.”
Liberty ceased to underwrite mobile phone insurance for new customers by February 2016, but by this stage it had seen its customer base grow from 40,000 in early 2011 to 1.3 million.
The third party handler has now paid out over £3m to affected customers.
Mark Steward, FCA executive director of enforcement and market oversight, said: “Fair, effective, and prompt settlement of claims is a fundamental requirement of mobile phone insurance, and customers should expect that any claim they make, or any subsequent complaint they lodge, will be dealt with fairly. Insurers must put in place adequate measures to make sure that claims and complaints and handled fairly, especially where those functions are outsourced.”
Liberty’s fine was reduced by 30% from £7.5m, as it agreed to settle with the FCA at an early stage of its investigation.
A statement from Liberty Specialty Markets said: “This fine from the FCA relates to activity undertaken by LMIE (our company market operation), under an arrangement which began in 2010, before the formation of Liberty Specialty Markets.
“Under this arrangement, a third party administered mobile phone insurance products on LMIE’s behalf. Several years ago certain issues came to light around some unfair outcomes for a very small proportion of customers (less than 1%). These issues have been addressed and LMIE has worked with the third party to ensure that redress was paid to any customer who might have been affected. LMIE no longer sells mobile phone insurance to new customers.
“At Liberty Specialty Markets, we welcomed the FCA’s focus on coverholder oversight, and responded by setting up a new, best in class Conduct function. This ensures that Liberty’s ethos of doing the right thing and putting the customer at the heart of everything we do, is put into practice effectively across all of our product lines and coverholder arrangements.”
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