The Financial Conduct Authority (FCA) has fined Homeserve Membership Limited £30.6 million for regulation breaches, including IT failings that led to customers being overcharged.
The insurance intermediary, which advises on and arranges home emergency and repairs insurance cover, was found to have breached three of the FCA’s principles for businesses between 14 January 2005 and 27 October 2011.
Breaching these principles meant that Homeserve did not treat customers fairly, misselling products and handling complaints poorly, and its senior management was found to be “insufficiently engaged with compliance matters”.
Homeserve was found to have breached Principle 3 by “failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”.
In particular, the FCA highlighted that during the period observed, Homeserve “failed to have in place adequate IT software and carry out effective tests on its IT systems”.
This meant that the company failed to detect and correct errors in the systems’ pricing calculations and checks for duplication of insurance cover, and resulted in 34,859 customers being overcharged and 8,796 being charged for duplicate cover they did not need.
More specifically, the FCA found that a coding error had led to the overcharging.
Between November 2006 and October 2011, Homeserve sold two similar insurance products, which were sold to new and existing customers as an upgrade from an existing policy.
Customers who upgraded should have had a discount to allow for premiums they had already paid on their existing policy. However, from 30 August 2007, an IT system coding error meant that customers who had upgraded did not receive this reduction, and were instead overcharged for the first year of the policy.
Meanwhile, because Homeserve did not carry out effective tests on its IT systems, the company did not detect the IT system coding error for over four years.
Homeserve has since paid £558,674 compensation to the nearly 35,000 customers affected.
In addition, the IT software programme Homeserve used to prevent overlaps in insurance policy cover completely failed to do the job between 14 January 2005 and 27 October 2011.
The software was designed to check for and identify repeat occurrences of addresses and/or customer names, but limitations of the programme meant that duplications were not identified if the details in the database were not entered consistently. For example, if abbreviations such as ‘St’ was used instead of ‘street’, or if a customer’s initial was used because of their full name.
Again, by failing to have appropriate testing in place that could have identified this error, thousands of customers were overcharged.
This meant that some customers were sold multiple insurance policies, so that customers paid twice for insurance cover, on which they could only claim once.
These customers have now received compensation totalling £918,210 from Homeserve.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “This is a serious case, one that has warranted our largest retail conduct fine and generated a sizeable bill for consumer redress. HomeServe is another example of a firm that has acted without proper regard for its customers over a long period of time.”