FSA slaps £2.8m fine on ACE-owned insurer

The FSA has fined ACE-owned Combined Insurance Company of America (CICA) £2.8m for failing to ensure that its customers were treated fairly.

CICA sold accident and sickness insurance products via a field force of self-employed sales agents.

During the period investigated by the FSA, 1 April 2008 to 26 October 2010, the company had 542,133 policyholders and received £47m in premiums for new policies sold. Its main customers were self-employed, small business owners and manual workers.

In August 2010, due to its concerns about CICA’s business, the City watchdog required the firm to undertake a section 166 report to examine the insurer’s governance and controls framework, subsequent to which the firm stopped writing new business.

The FSA found that CICA had 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 had no minimum qualification requirements for its agents and employment references were not always obtained
• CICA lacked 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; and
• aspects of CICA’s complaints handling procedure and the accompanying systems and controls were inadequate.

CICA has agreed to carry out a review of past business to identify any customer detriment and pay redress.

FSA acting director of enforcement and financial crime Tracey McDermott said: “CICA’s widespread failures reflect a culture that did not recognise the importance of treating customers fairly. This created a significant risk that customers would not get a fair deal.

“Firms must ensure that protecting the interests of their customers is at the heart of every aspect of their business.”

CICA settled early with the FSA and received a 30% discount on its fine. The FSA also took into account that CICA had already taken steps to address some of the issues raised by the FSA.

A CICA spokesman said: “The FSA’s actions address certain business practices that occurred from 2008 to 2010 that did not meet regulatory requirements or our company’s own standards. Since then, the company has taken decisive action to correct these issues by suspending new sales, appointing new senior management and improving processes and controls.

“The company remains in a strong financial position and is committed to serving all its existing policyholders, including the renewal of policies and the ongoing payment of claims.”