Homeserve under investigation by FSA

Home repairs group Homeserve
has revealed it is being investigated by the City watchdog in the wake
of accusations over mis-selling and failures in complaints handling.

And the Walsall-based group, which has 2.7 million customers with 6.7 million policies insuring against and repairing burst pipes, broken down boilers and electrical problems, said it would downsize its UK operation as it struggles to bounce back from the crisis.

Homeserve, which saw its shares slide 23% on the FTSE 250 Index, wiping nearly £200 million from its value, said the Financial Services Authority (FSA) would look at "certain historic issues".

The group, which revealed an 8% rise in underlying pre-tax profits to £126 million, said it had taken longer to restore activities since suspending telephone sales after discovering possible mis-selling of its household emergency policies.

Richard Harpin, Homeserve chief executive, said: "In the UK we are planning to create a smaller, more focused and sustainable business from which to grow."

Andy Brown, analyst at Panmure Gordon, said: "Management has been working hard to rebuild confidence but uncertainty still exists. The FSA investigation and, therefore, potential fine, is clearly negative for investor sentiment and may impact its international growth aspirations."

Homeserve last year identified a number of potential failings in its sales and marketing, complaints handling and associated governance and controls.

The group, which in the last year completed 900,000 home emergency repairs, said the FSA's investigation will take a number of months to complete.

Homeserve said plans to downsize the UK operation will include refocusing on partner markets of water utilities, manufacturers of installed appliances and financial services companies.

The company will also reduce the number of customers acquired on high discounts and those where it has limited potential to cross-sell across its products.

Earlier in the year, Homeserve announced plans to cut its UK headcount by around 200 and yesterday revealed a further reduction of 250 as it expects to lower its customer numbers.

UK revenues fell by £5.4 million to £353.5 million in the year due to the temporary suspension of sales and marketing activity in October.

After suspending operations, the group developed new telesales scripts and retrained sales agents, as well as revising how it incentivised its sales staff.

The company is contacting any customers where there is a risk that they may have suffered detriment as a result of the way in which they were sold their policy.

Inbound calls were restarted in early November on a phased basis, while direct mail activity for new customer acquisition and cross-selling restarted from January.

PA