FCA fines for failings in oversight of third party claims handling

On 30 October 2018 the FCA announced that it had fined Liberty Mutual Insurance Europe SE (Liberty) £5,280,800. The fine relates to failures in Liberty’s oversight of claims and complaints relating to mobile phone insurance for the period 5 July 2010 until 7 June 2015.

According to the Final Notice issued by the FCA, Liberty had entered into a relationship with a third party coverholder (Coverholder) which enabled the Coverholder to provide mobile phone insurance to UK retail customers. Though underwritten by Liberty, functions such as claims adjustment and complaints handling were provided by the Coverholder – which was itself authorised. Liberty retained the regulatory responsibility to ensure that such claims and complaints complied with requirements.  It was aware this new venture carried regulatory risks and that it was not best placed to police compliance, yet did not carry out a proper risk assessment and implement appropriate board level responsibility.

 The FCA highlighted a number of issues with the claims and complaints handling by the Coverholder:

  • Some claims were unfairly rejected or not properly investigated. Certain customers complained about this and subsequently had their original decision overturned creating a ‘de facto two stage claims process’;
  • Some complaints were dismissed without the Coverholder having undertaken a full investigation.


After FCA’s 2013 report into the market, Liberty enhanced its oversight of the third party which ultimately led to it appointing a Skilled Person to carry out a review, after spending significant time working to understand the Coverholder’s business model.

The FCA concluded that Liberty had breached Principle 3 (Management and Control) and Principle 6 (Customers’ interests) of the Principles for Business.  It said the failings were particularly serious because they caused the risk of loss to individual consumers and showed systemic weaknesses in Liberty’s procedures and management systems. Despite the fact the Coverholder was authorised, Liberty could not entrust the design and handling of the complaints process to it.

Liberty and the Coverholder had undertaken a voluntary redress and remediation exercise prior to the start of the Enforcement investigation. This was in respect of claims which may have been unfairly rejected by the Coverholder. The redress offered to customers was nearly £4 million which was taken into consideration when the FCA calculated the financial penalty. FCA also took into account the improvements Liberty had made, the appointment of external consultants and the fact it no longer writes the cover.  In addition, the financial penalty would have been £7,544,000 but for Liberty settling at an early stage and being eligible for a 30% discount.


Amy Rose-McMullen