More than 9 million letters were sent to existing customers between 2009 and 2017 claiming that renewal quotes were offering a “competitive price”, but the FCA discovered that bank was offering lower quotes to new customers for the same product, without checking the accuracy of the messaging.
This is the second largest fine handed ever out to retail bank by the FCA. The largest was also to Lloyds at £117m in 2015 for PPI mis-selling.
The FCA is actively clamping down on so-called “loyalty” fees, where insurers charge higher rates for loyal customers through renewals compared with new customers, with new rules being introduced from January that will prohibit the practice.
Mark Steward, executive director of enforcement and market oversight at the FCA, commented: “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.”
Some 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.
But 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 given.
Lloyds only changed this once the FCA’s investigation was launched. The bank has also 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.
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.”