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FSA fines firm for call centre failings

The Financial Services Authority has fined UNAT DIRECT Insurance Management £640,000.

The FSA said the penalty was imposed for failings relating to a lack of effective control and oversight over its appointment of call centres.

UNAT - an indirect, wholly-owned subsidiary of American International Group Inc (AIG) - used nine call centres to sell general insurance products (mainly personal accident insurance policies) underwritten by another AIG group company.

Due diligence 

UNAT had a procedure in place to check whether call centres were authorised by the FSA, the extent of their compliance resources and their processes for compliance monitoring and data security.

The FSA said that the firm had failed, however, to prevent its staff from instructing the call centres to start selling to consumers before the due diligence process had been completed.

The regulator added that senior management did not receive adequate management information to enable them to satisfy themselves that the call centres were suitable to carry out insurance sales.

“This lack of effective control and oversight meant UNAT did not carry out an acceptable level of due diligence before the call centres began selling,” according to the FSA.

In one case, UNAT had not completed its due diligence over 250 days after the call centre had begun selling. In another case, a call centre sold insurance when it was not authorised by the FSA to do so.

Failed to carry out proper checks 

While UNAT's compliance team identified concerns about this call centre's regulatory status at an early stage, UNAT failed to resolve these concerns and the unauthorised call centre continued to sell around 4,000 policies to consumers over a period of six months prior to it becoming FSA authorised.

Margaret Cole, director of enforcement at the FSA, said that selling general insurance products to consumers through call centres involved greater risk.

She pointed out that UNAT was aware of the higher risk but failed to carry out proper checks on the call centres it used.

Cole warned that UNAT's failure to have effective control over its due diligence process exposed customers who bought policies from the call centres to an unacceptable level of risk that they would not be treated fairly.

“The FSA will impose significant fines on general insurance firms whose management of call centre risks falls below acceptable standards,” she added.

Restitution package

Between 14 January 2005 and 22 March 2007, over 150,000 insurance products were sold though the nine call centres.

UNAT ceased all sales of general insurance through call centres on 22 March 2007 pending the outcome of a review. UNAT has improved its systems and controls following the recommendations in the review.

Since the discovery of these issues, UNAT has been working with the FSA to ensure that no customer has suffered loss by putting in place a comprehensive restitution package.

UNAT received a 20 per cent discount for settling in Stage 2 of the FSA's executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £800,000 on UNAT.

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