Lloyds Banking Group Fined £90m After Misleading Insurance Customers

The Lloyds Banking Group has been hit with a £90 million fine by the Financial Conduct Authority after it has been found to have send millions of misleading letters to its home insurance customers. It’s the largest penalty levied by the FCA in the past two years.

The reason for the fine is because the group has sent letters to customers encouraging them to renew their home insurance policies, claiming that the prices being offered were “competitive” although these claims were not substantiated. The group sent almost 9 million of these letters to customers.

Despite warnings about the wording in the letters, it took the bank almost ten years to completely remove the language from its communications. It was also found to have promised loyalty discounts to around half a million customers who then never received any form of discount.

Voluntary Compensation Paid

The FCA has ruled that 87 per cent of customers who were sent letters with misleading information ended up renewing their policies. The regulator has said that they will not be forcing the Lloyds group to give customers who received these letters compensation.

However, the bank has volunteered to compensate the half a million customers who were told they would receive loyalty discounts but then were given nothing. So far, it has paid out almost £14 million to 350,000 customers, at an average of around £39 per customer.

Mark Steward, the Financial Conduct Authority’s executive director of enforcement and market oversight, said that the banking group’s actions had risked “serious consumer harm” to millions. Lloyds has since apologised.

We’re sorry that we got this wrong. We’ve written and made payment to those customers affected by the discount issues 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.

Clamp Down On Insurance Fraud

The move by the FCA to levy such a large fine is part of a wider movement to clamp down on unfair practices by businesses that take advantage of loyal customers. It comes ahead of new regulations coming into law in 2022 which will force insurers to offer existing customers a renewal price that is no higher than the price offered to brand-new customers.

It’s a regulation intended to prevent the practise known as price walking, where customers are enticed at a lower rate and then gradually see their costs increased over time.

Citizens Advice estimate that customers are losing out on around £900 a year due to price walking, although that’s combined across insurance and four other markets, such as mobile phones and broadband.

The wider aim is to ensure that customers don’t have to keep switching suppliers in order to secure the best prices, and don’t need to worry that their loyalty to a company actually costs them more money over the duration of their contracts.