Homeserve facing £34.5m penalty

The City regulator has imposed a £34.5 million fine on Homeserve for mis-selling.
13 January 2014

Home repair and insurance group Homeserve is facing a £34.5 million fine by the City regulator for a mis-selling scandal - over £30 million more than it expected.

The Walsall-based firm had previously set aside only £6 million to meet a penalty by the Financial Conduct Authority (FCA).

It was taken by surprise when a draft warning notice by the FCA indicated that the fine would be nearly six times higher, forcing it to issue a statement to investors.

However, shares were lifted by the prospect of the company being able to draw a line under the affair. It has been under a cloud since first revealing problems with its sales practices in October 2011.

The FCA probe looked into mis-selling of household emergency policies and poor handling of customer complaints by the company, whose products include boiler and central heating breakdown cover and insurance against blocked drains.

The scandal has already seen it fined £750,000 by regulator Ofcom in 2012 for silent and abandoned calls.

Homeserve said it was now setting aside £36 million to cover the FCA fine and associated costs - which are in addition to the £40 million already put by to cover compensation for customers.

The FCA figure is not final and the group said it would "engage in discussions" with the regulator. It was understood that these talks would seek to establish the basis on which the fine was calculated.

Homeserve appeared to have massively underestimated the scale of the penalty by working out the fine it expected to pay on a different basis to that used by the FCA.

Previous fines that may have been used to work out the level of liability were issued before tougher rules in 2010 designed to ensure that fines take appropriate account of the money made by the firms alleged to have committed misconduct.

Its guidance states that in many cases the FCA's fine will be based on a percentage of the company's revenue "from the relevant products or business areas".

Homeserve said the penalty announced today assumed there would be an early settlement discount of 30%.

The group, which will issue an interim management statement on February 5, said its ongoing UK activities were unaffected and the business continued to trade in line with expectations.

It marks the latest bill for the company over the scandal, after it admitted last November that it had under-estimated the compensation bill for customers who were sold policies dating back to 2005.

At that stage it set aside a further £19 million to add to the £21 million already put by for redress and the cost of overhauling working practices.

Analysts from JP Morgan Cazenove said that while the proposed FCA fine was higher than expected, today's announcement "should draw a line under the historical issues and allow the group to continue to rebuild the ongoing UK business".

Homeserve has previously said its efforts to address the scandal and reinforce a ''customer-focused culture'' have seen increased levels of customer satisfaction and fewer complaints.

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