Lloyds Banking Group’s insurance division has been fined £90.7m for misleading customers over their home insurance renewal quotes.
The Financial Conduct Authority (FCA) said the bank sent out nine million letters to existing customers between 2009 and 2017 claiming that renewal quotes were offering a “competitive price”.
But the bank would be offering lower quotes to new customers for the same product and did not check the accuracy of the messaging, the FCA found.
The fine is the second largest handed out to a non-investment, or retail, bank in the FCA’s history. The largest was also to Lloyds at £117m in 2015 for for PPI mis-selling.
So-called “loyalty” fees, where insurers charge higher rates for loyal customers through renewals compared with new customers, are being cracked down on by the regulator, with new rules coming into force from January that will ban the practice.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: ”Firms must ensure their communications with customers are clear, fair and not misleading. LBGI (Lloyds Bank General Insurance) failed to ensure that this was the case.
“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.”
The FCA accepted that the bank started removing the “competitive price” phrase from 2009 but found that a substantial number of renewals continued to include the wording.
Around 87% of renewals were agreed to by customers who received letters with the misleading wording, although the FCA could not say how much impact the wording had.
However, the FCA said this “caused a risk of harm for the majority” of Lloyds’ insurance customers “because it was likely that the premium quoted to them at renewal would have increased when compared to their prior premium”.
It added: “Renewal premiums offered to customers would also likely have been higher than the premium quoted to new customers, or customers that chose to switch insurance provider.
“This was particularly likely to be the case for customers who renewed repeatedly.”
Separately, the FCA found that around 500,000 customers were told they would receive a discount based on “loyalty” or being a “valued customer”, but the discount was never applied.
Bosses at Lloyds only changed this once the FCA’s investigation was launched.
Lloyds has since made voluntary payments of around £13.5m to customers who received the letters about a discount that was never applied and this was taken into account when deciding the size of the fine, the FCA said.
The FCA has been cracking down on insurance premiums, having found between 2018 and 2020 that most existing customers would receive a higher quote for the same product than a new one.
Insurers have previously enticed new customers with loss-making discounts in the hope of turning them into longer-term customers where higher renewals can be charged in the future.
The loss-making deals would be offset by charging higher prices to existing customers.
A Lloyds Banking Group spokesperson: “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.”