Lloyds Bank fined £90 million over home insurance renewal letters

·3 min read
A pedestrian walks past a temporarily closed-down branch of a Lloyds Bank in London on February 24, 2021. - Britain's Lloyds Banking Group on Wednesday reported a slump in 2020 profit due to
The Financial Conduct Authority has fined Lloyds Bank £90 million for misleading letters, risking customers paying more for home insurance renewals. (Tolga Akmen/AFP via Getty Images)

Lloyds Bank (LLOY.L) and subsidiary Halifax have been fined £90 million over misleading home insurance renewal letters that risked giving customers a bad deal.

Lloyds Bank General Insurance (LBGI) was fined £90.6m by the Financial Conduct Authority (FCA) on Thursday for failing to make communications clear in letters sent to customers between January 2009 and November 2017.

The bank apologized and said it had already handed money back to some of the affected customers.

Lloyds and Halifax sent nearly 9 million renewal communications to home insurance customers between 2009 and 2017. The letters suggested customers were receiving a “competitive price” at renewal but LBGI did not check the accuracy of that claim. Policies were renewed in approximately 87% of cases.

LBGI rewrote letters and started removing the problematic wording from 2009 onwards but the issue persisted, the FCA said.

”Millions of customers ended up receiving renewal letters that claimed customers were being quoted a competitive price which was unsubstantiated and risked serious consumer harm," said Mark Steward, executive director of enforcement and market oversight at the FCA.

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Issues were identified with approximately 1.2 million renewals and 1.5 million letters.

The FCA said customers may have been quoted a higher premium when renewing home insurance compared to prior policies. Renewal premiums offered to customers were also likely have been higher than the premium quoted to new customers or customers that chose to switch provider.

Separately, LBGI told around half a million customers that they would receive a discount based on their “loyalty” but discounts were not applied. The issue was only identified and corrected by LBGI during the FCA’s investigation.

A Lloyds Banking Group spokesperson said: “We’re sorry that we got this wrong. We’ve written and made payment to those customers affected by the discount issue and they don’t need to take any further action.

“We thank the FCA for bringing this matter to our attention and since then we’ve made significant improvements to our processes and how we communicate with customers.”

LONDON, UNITED KINGDOM - 2021/07/01: People walk past a Lloyds Bank branch in London. (Photo by Belinda Jiao/SOPA Images/LightRocket via Getty Images)
The misleading language around discounts affected approximately 1.2 million renewals. (Belinda Jiao/SOPA Images/LightRocket via Getty Images)

The FCA has not established whether individual customer behaviour would have been different if the communications in this case were not misleading.

The FCA did not make it a requirement for LBGI to compensate customers who received a renewal letter that included the claim the renewal premium was ‘competitive’.

LBGI voluntarily made payments of approximately £13.5 million to customers who received communications that wrongly referred to a discount when none was applied. LBGI is contacting customers so they do not have to take any steps to receive payment. 

Under new FCA new rules that come into effect on 1 January 2022 insurers will be required to offer renewing customers a price no higher than they would offer to new customers, which should save consumers an estimated £4.2 billion over 10 years.

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