The FCA fine Liberty Mutual £5.2 million for oversight failures

Liberty-Mutual-fined-by-the-FCA

The Financial Conduct Authority has fined Liberty Mutual Insurance Europe SE (Liberty) £5,280,800 for failures between 5th July 2010 and 7th June 2015 in its oversight of its mobile phone insurance claims and complaints handling processes administered through a third party.

Liberty is a large UK insurer who entered into a relationship in the UK with a third party to enable them to provide mobile phone insurance to retail customers. The third party undertook all administrative functions associated with the mobile phone insurance on Liberty’s behalf including all claims and complaints handling functions. Liberty retained regulatory responsibility for ensuring that claims and complaints made by customers were handled fairly, and ought to have ensured that it had in place adequate systems and controls to oversee the activities of the third party throughout. It did not.

Liberty’s customers were exposed to the possibility that their claims and complaints would not be handled fairly. During the relevant period some claims were unfairly declined or not investigated adequately. Some customers who complained about this had the original decision overturned which created a de facto two-stage claims process and others had complaints dismissed without a proper investigation having been undertaken.

In 2013 the FCA published a Thematic Review setting out its expectations for the mobile phone insurance market and followed this up with a further publication in December 2015, having also produced a Thematic Review reiterating insurers’ regulatory obligations for overseeing outsourcing arrangements in 2015.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

“Fair, effective, and prompt settlement of claims is a fundamental requirement of mobile phone insurance, and customers should expect that any claim they make, or any subsequent complaint they lodge, will be dealt with fairly. Insurers must put in place adequate measures to make sure that claims and complaints and handled fairly, especially where those functions are outsourced.”

Prior to the commencement of the Enforcement investigation, a voluntary redress and remediation exercise was undertaken by the third party in conjunction to Liberty in relation to claims which may have been unfairly rejected. The total amount of redress offered to customers who may have suffered detriment was nearly £4 million. This has been taken into account in calculating the financial penalty.

Liberty settled at an early stage of the investigation and therefore qualified for a 30% discount. Without the discount, the financial penalty would have been £7,544,000.

Liberty Specialty Markets response:

“This fine from the FCA relates to activity undertaken by LMIE (our Company market operation), under an arrangement which began in 2010, before the formation of Liberty Specialty Markets. Under this arrangement, a third party administered mobile phone insurance products on LMIE’s behalf. Several years ago certain issues came to light around some unfair outcomes for a very small proportion of customers (less than 1%). These issues have been addressed and LMIE has worked with the third party to ensure that redress was paid to any customer who might have been affected. LMIE no longer sells mobile phone insurance to new customers.

At Liberty Specialty Markets, we welcomed the FCA’s focus on coverholder oversight, and responded by setting up a new, best in class Conduct function. This ensures that Liberty’s ethos of doing the right thing and putting the customer at the heart of everything we do, is put into practice effectively across all of our product lines and coverholder arrangements.”