FSA Slams Carphone Warehouse For Insurance Failings

by Robin Pilgrim, LawAndTax-News.com, London

12 September 2006

The UK's Financial Services Authority (FSA) last week fined phone retailer The Carphone Warehouse Ltd GBP245,000 for not treating its customers fairly following telephone sales of general insurance, and for failing to inform the regulator in a timely manner of significant systems failures within its telesales distribution channel.

An FSA investigation found that between 14 January and 24 October 2005, The Carphone Warehouse Ltd failed to send 118,000 customers, who had bought mobile phone insurance through its telesales channel, a Statement of Demands and Needs (SDN) in written form. It was subsequently discovered that 56,000 of those customers also did not receive a policy summary setting out its main features.

This was considered a serious failing by the FSA, as both documents contain important information that helps consumers understand the policy they are buying.

Where a customer has received advice, the SDN is designed to show the customer why the product recommended is suitable in the context of their demands and needs; for example whether the customer already has any relevant existing insurance. The policy summary details key facts such as the main features and benefits of the insurance, how long it lasts, and the time period the consumer has to cancel the policy, and it also highlights any significant and unusual exclusions or limitations the policy may have.

This was seen as a breach of the FSA's 'Treating Customers Fairly' principle.

Sarah Wilson, Director of Retail Firms at the FSA explained that:

"The Carphone Warehouse Ltd failed its telephone sales consumers by not giving them all the information necessary for them properly to understand the insurance product they had bought. Customers were therefore exposed to the risk of being left with an insurance policy which was unnecessary or provided incomplete cover leading to rejected claims. In either case they could suffer some degree of financial loss."

"The FSA's general insurance rules have been put in place to provide an appropriate level of consumer protection. Firms must treat their customers fairly. We will not hesitate to consider enforcement action in circumstances where a firm's systems or actions leave open the potential for significant consumer detriment."

The level of the fine also reflects the firm's failure to notify the FSA of the problems in its telesales distribution channel in a timely manner.

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