FSA cancels insurance firm's permission to trade
FSA/PN/013/2006
21 February 2006
The Financial Services Authority (FSA) has cancelled Xsavi Limited's (Xsavi) permission for failing to conduct its business in compliance with proper standards and for having inadequate financial resources. This is the first enforcement cancellation on conduct of business grounds taken against a general insurance firm since the FSA took over the regulation of general insurance in January 2005.
Between 1 and 25 February 2005, Xsavi claimed to be acting as agent for an insurer and to have authority to bind the insurer when it did not. As a result, 2,000 customers were issued with a travel insurance contract when there was no insurance in place. A further number of customers were potentially put at risk of not having effective travel insurance in the period March to August 2005, as Xsavi exceeded its authority in respect of its agency agreements with two other insurers.
In all Xsavi failed to comply with four of the FSA's Principles for Businesses in relation to: integrity; skill care and diligence; management and control, and customers’ interests.
Andrew Honey, Head of Insurance in the FSA's Small Firms Division, said:
"This is an important message for general insurance firms. Xsavi's behaviour in arranging contracts of insurance without underwriting being in place is not acceptable. This practice poses significant risks to consumers - potentially extremely serious in relation to travel insurance - and does not meet the standards we expect. We will take action against firms that fail to comply with our rules."
The situation was made worse as Xsavi misrepresented to its market counterparties that it had underwriting in place knowing that on this basis the counterparties would obtain business from travel industry firms and sell travel insurance policies to customers.
While the FSA accepts that Xsavi was in genuine negotiations via an agent with an insurer to provide underwriting, Xsavi's Managing Director Ian Allan 'jumped the gun' in facilitating the sale of the policies through brokers at a time when there was no agency agreement in place.
When he became clear that the business arrangement with the underlying insurer was not going to proceed, Mr Allan reported the matter to the FSA. No consumers were disadvantaged as retrospective cover was put in place.
Mr Allan notified the FSA on 15 September 2005 that Xsavi was insolvent. As a consequence of its insolvency the firm had inadequate financial resources in breach of Threshold Condition 4 for authorisiation.
Notes to editors
- The full text of the Final Notice issued by the FSA includes the background to the case, the relevant statutory provisions, regulatory requirements contravened, and the factors taken into account in reaching its conclusion.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve our business capability and effectiveness.