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FSA/PN/080/2008
28 July 2008

The Financial Services Authority (FSA) has fined Hastings Insurance Services Ltd (Hastings) £735,000 for failing to treat its customers fairly in relation to cancelling around 4,550 incorrectly priced car insurance policies.

During two separate periods between July and September 2007, Hastings discovered that due to an internal system error, inaccurate insurance quotations were given to customers, which resulted in some of them paying significantly lower premiums than they should have. Hastings cancelled the policies but in doing so failed to give sufficient consideration to paying the premium shortfall to the insurance provider or investigating other possible remedies.

The FSA found that the firm had invoked a cancellation clause to cancel the policies which the FSA considers was not generally intended to be used in circumstances such as these. The FSA found that the way in which the policies were cancelled and the service that the firm gave to its customers following the cancellation showed the firm focussed on the financial cost to itself and did not properly consider the alternatives or the detrimental effect on customers. Following these incidents the firm has now strengthened the controls surrounding customer treatment and agreed with the FSA to write to all affected customers and review the compensation it offered to ensure that its customers are treated fairly.

Margaret Cole, FSA Director of Enforcement, said:

"The FSA has stressed to all firms the importance of treating their customers fairly but it is clear from our investigation that Hastings put its own interests ahead of those of its customers. The firm failed to consider properly what effect cancelling policies might have on its customers which illustrates that the fair treatment of customers had not been embedded into its corporate culture as our TCF principle clearly requires."

Hastings agreed to settle the case at an early stage, otherwise the fine would have been £1,050,000.

Notes for editors

1. The trading name of Hastings Insurance Services Ltd is Hastings Direct and its head office is based in Bexhill-on-Sea, East Sussex. The Final Notice for Hastings Insurance Services Ltd includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account when settling the level of the fine.

2. Between 15 and 26 June 2007, errors in Hastings' ratings data resulted in 1,880 policies being sold with premiums that were under-priced by an average of £222. Upon discovering its error, the firm decided to cancel approximately 1,850 policies that had yet to come into effect. On 11 July, Hastings discovered unrelated data errors had resulted in a further 3,889 policies being sold with incorrect premiums, some of which were under-priced by an average of £539 - the firm cancelled approximately 2,700 of these policies.

3. The cancellations forced the firm's customers to take out new insurance at short notice. In many cases, customers were deprived of the opportunity to earn any 'no claims discount' bonus for the period they were insured. The FSA also believes that customers may experience difficulty in obtaining future insurance as they would be obliged to declare that they have had a policy cancelled.

4. The service Hastings offered after the cancellations was also inadequate and relied solely on its complaints procedure to ensure that customers were treated fairly. Hastings only paid compensation for stress and inconvenience if customers complained rather than ensuring all customers were compensated. Hastings also uncovered 105 cases of mis-selling in instances where ancillary products were offered to customers when re-broking their cancelled policies.

5. 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.

6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.