Home insurance compensation: Lloyds Bank fined over misleading renewal letters

Misleading letters from Lloyds suggested customers would get a ‘competitive’ price on their insurance renewals.

Lloyds Bank General Insurance ‒ a group which includes the likes of Lloyds Bank, Halifax General Insurance and St Andrew’s Insurance ‒ has been hit with an incredible fine of more than £90.6 million due to the misleading way it has handled insurance renewals.

It all comes down to the renewal letters sent out by firms within the Lloyds group to existing policyholders once their home insurance policy came up for renewal.

An investigation by the Financial Conduct Authority (FCA) revealed that these letters were misleading, promising the recipients that they were receiving a competitive renewal price.

The problem is that the insurance firms in question didn’t actually back up using that language by checking that it was at all accurate.

What’s more, the letters were obviously effective, since almost nine out of every 10 customers who received one ended up renewing their policy rather than taking their custom elsewhere.

These failings were happening for a prolonged period too, between January 2009 and November 2017, with nearly nine million renewal letters sent out containing this misleading language.

It’s worth highlighting that the Lloyds Group itself had started to remove the ‘competitive price’ wording from its policies from 2009 anyway, but it clearly remained in a huge number of renewal letters.

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The missing discount

What’s more, the investigation by the FCA also revealed that around 500,000 people were told they would receive a discount on their premium, perhaps based on their ‘loyalty’ or because they were a ‘valued customer’.

However, the supposed discount was not applied, and according to the regulator, there was never any intention to apply any such price cut.

Again, this was an effective tactic.

While it was only used on around half a million customers, it affected around 1.2 million renewals, meaning that the same customers were on the receiving end of a non-existent discount repeatedly.

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Putting things right

Clearly, the size of the fine levied on Lloyds Bank General Insurance is enormous. But how much of it is going to be heading back to the customers affected?

The answer, sadly, is not a lot.

When it comes to the letters that claimed that the renewal price was ‘competitive’, the regulator has decided that the firm does not have to pay any compensation to the recipients.

It said it cannot establish whether people’s behaviour would have been different if those letters had been clear, fair and not misleading.

However, compensation is being paid to those who were promised discounts that never materialised.

So far, £13.5 million has been made to these customers ‒ believed to be around 350,000 to date ‒ with Lloyds actively contacting the remainder, meaning that if you were one of them you don’t have to do anything in order to receive that money.

The cost of renewing

To be completely honest, I think it’s a farce that Lloyds has escaped having to pay compensation to anyone who was sent one of these misleading letters.

The reality is that Lloyds knew full well that any customer who shopped around would likely find a cheaper deal elsewhere, simply on the basis of being a new customer rather than an existing one.

Insurers have profited for years off the back of tempting us in with a cheap price in the first year, only to ratchet it up in the years that follow when we renew.

Yes, some of those customers would have renewed anyway, simply because they couldn’t be bothered shopping around.

But others will have coughed up more than they could have, on pricey renewal deals, because they made the understandable mistake of thinking their insurer was telling the truth. 

It’s because of these renewal tactics that the regulators have thankfully forced insurers to be more transparent about how they hike our policy costs each year.

Now, when you receive that renewal letter, the price you paid for the previous year’s cover has to be displayed clearly, which will ‒ hopefully ‒ push more people into shopping around for a new deal. 

What’s more, new rules coming into effect next January mean that insurers will be forced to offer renewing customers the same price they would offer them as a new customer.

It’s a step in the right direction, albeit one that has taken far too long to come to fruition.

And it won’t help the millions of people who received these misleading letters, paid over the odds for their cover, and won’t even get any money back in order to put things right.