Financial Conduct Authority hits out at mis-selling by insurers’ ‘appointed representatives’

Watchdog finds widespread problems when firms take on third parties to sell insurance but fail to supervise them as they are supposed to. Disciplinary action may now follow in at least two cases

James Moore
Friday 22 July 2016 15:45
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The Watchdog may launch disciplinary action after finding evidence of mis-selling
The Watchdog may launch disciplinary action after finding evidence of mis-selling

Consumers are being ripped off by so called appointed representatives (ARs) of insurance sellers, the City watchdog has found in a devastating report into the sector.

At least two firms could now face heavy fines after the Financial Conduct Authority unearthed “significant shortcomings” in the way they supervised ARs sales of general insurance policies. These can range from home and motor insurance to extended warranties.

The watchdog's latest “thematic” review found instances of customers being sold products they did not need or which they may not have been eligible to claim under. It also said salesmen frequently failed to provide enough information for their customers to make informed decisions.

Appointed representatives are supposed to be supervised and monitored by an FCA authorised firm the principal which takes responsibility for their activities and is supposed to ensure they comply with rules.

But the review found that over half of the 15 firms surveyed “could not consistently demonstrate” that they had effective risk management and control frameworks.

It found examples of potential mis-selling and customer detriment as a result of appointed representatives’ actions at a third of the firms. In at least one case “there was significant evidence of mis-selling” leading to consumers losing money.

Examples of bad practice included one where a “principal” with a network of motor dealer ARs identified mis-selling at one of them including one example where customer documentation had been falsified. But no action was taken against the individual at fault because their bosses at the dealership objected. Customers weren’t contacted to assess whether they needed compensating.

In another all sales calls made by an AR selling extended warranties were found to be non-compliant due to key sections of the script, which had been automated using a pre-recorded message, not being delivered. The recorded message had not been working.

Some sales agents went off script, others “routinely misrepresented themselves by claiming to be from the firm that initially sold the appliance to the customer”. Sales calls were sometimes pressurised and did not seek appropriate consent from potentially vulnerable customers.

One broker, with a network of retail ARs, had “only one person allocated on a part-time basis to overseeing a network of over 50 ARs operating at 172 locations with 2,761 individual representatives”.

Jonathan Davidson, director of supervision – retail and authorisations at the FCA said: “We found widespread examples of poor practices across the sector. In many cases firms were simply failing to understand and manage the risks arising from their appointed representatives’ activities

“General insurance is a large and important sector and we are concerned about the potential for customer detriment arising from the lack of oversight of appointed representatives. All principal firms need to consider these findings and look again at their practices.”

The watchdog is preparing to write to the bosses of firms using appointed representatives to set out its expectations and tell them where they must improve practices.

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