The Financial Services Authority (“FSA”) has expressed its distaste for the selling of low cost insurance products that offer little or no value to the customer. Look no further than its comments in the 2012/2013 Business Plan, the 2012 Retail Conduct Risk Outlook and most recently the speech by Martin Wheatley to the ABI in September 2012.

The FSA clearly meant business and has now subjected the credit card protection company Credit Card Protection Limited (“CPP”) to the full rigour of its enforcement powers, finding CPP guilty of the widespread mis-selling of insurance products which the FSA described as “particularly serious.”

In total, CPP sold 4.4 million policies and generated £354 million in gross profit.

CPP now faces an estimated bill of £33.4million; that includes a record fine of £10.5million and an estimated £14.5million to be paid as compensation to affected customers. CPP has also entered into a voluntary variation of its FSA permission which has resulted in significant restrictions on the sales of regulated card protection and identity products. The FSA has also required CPP to appoint a “skilled person” to monitor and report on its claims and complaints handling.

The FSA found that CPP had “failed to communicate with customers in a way that was clear, fair and not misleading,” for more than 6 year, concluding that CPP had amongst other things:

  1. sold its card protection product by emphasising to customers that they would benefit from up to £50,000 or £100,000 worth of insurance cover, even though customers would only need this cover when they were not already covered by their banks;
  2. failed to explain the very limited circumstances in which customers would need such card protection cover;
  3. overstated the risks and consequences of identity theft during sales of it’s identify protection product, including through the use of misleading and out of date statistics and inappropriate sales techniques; and
  4. condoned inappropriate sale techniques by its agents, encouraging them to be “overly persistent”.

It is particularly significant that from June 2008 to March 2011, the FSA had identified compliance deficiencies in the way CPP sold the products, previously warning CPP in its Compliance Reports and even required the firm to commission a skilled persons’ report 2008. However, CPP failed to take overall sufficient action to deal with the compliance deficiencies to the full satisfaction of the FSA.

Prior to the CPP fine, the FSA has given due warning to firms, expressing it dislike of low costs insurance products with what the FSA sees as sales tactics linked to skewed incentives for staff and inappropriate sales tactics. Anecdotal evidence suggests that CPP however may be the first in a line of such enforcement cases as the FSA moves to try and stamp out such practices in 2013 and the move to “Twin Peaks”.