James Moore: Why Homeserve's bad habits need to be curbed

If you ever needed an example of why the insurance industry gets it so wrong so often Homeserve's chief executive Richard Harpin provided it yesterday. Some 94 per cent of Homeserve's customers are satisfied with the service, he declared. Why, then, has the group has found itself in such a pickle?

The company sells insurance that covers people against all sorts of domestic emergencies – problems with the boiler, the heating, the drains and so on. They pay a monthly premium to Homeserve in the hopes it will sort them out quickly and painlessly. It sounds like a fine idea, particularly for people who can easily get ripped off by unscrupulous tradesmen, such as the elderly.

Trouble is Homeserve often uses contractors (rather than its own people) and they haven't always done the best of jobs.

But there's more. It appears quite a lot of Homeserve's policies have been mis-sold and when people have complained the company has been less than sympathetic. These problems are sufficiently serious to warrant the Financial Services Authority sending in the bovver boys. Which could lead to a hefty fine.

It might be true that 94 per cent of customers are happy, although given that these figures tend to be provided by market research companies, which are after repeat business, that has to be taken with a pinch of salt. But if, like Homeserve, you have 2.7 million customers, the six per cent of them less than impressed amounts to 162,000 people. Plus their family members. And all their friends they will be cussing the company out to right now.

Homeserve is an unusual insurer but it seems to have fallen into the sort of bad habits that plague the rest of the industry and are responsible for its rotten reputation. Such as putting all your energies into sales and thus ensuring that when people have to call upon you for help you compound their problems, while patting yourself on the back over such meaningless numbers as that 94 per cent.

To be fair, Mr Harpin is addressing the problem. Yesterday he told the City that to look after his customers properly he's going to have to lose at least 300,000 of them in the UK. He plans to employ more in-house plumbers and heating engineers, whose performance he can more easily monitor, while incentivising staff to treat customers better. The City didn't like it much but the short-term pain ought to produce a long-term gain.

Mr Harpin's boast of 94 per cent customer satisfaction suggests while his UK business is going to be smaller, it isn't necessarily going to be any more humble. His radical prescription for the company might be the right one. But unless he gets it to a place where only a handful of clients have cause for complaint, and where those complaints are resolved quickly, it won't be cured.