HomeServe faces £34 million penalty

Mis-selling of products and a sub-standard complaints procedure has landed HomeServe with a massive fine from the regulator.

HomeServe has been warned it could face a fine of £34 million from financial services regulator the Financial Conduct Authority (FCA).

The warning comes after an 18-month investigation into the home maintenance firm. If it's approved, it will be the largest ever fine handed out by the regulator.

The company is under scrutiny for a history of questionable sales and marketing tactics and poor complaints handling.

Record fine

In a statement, HomeServe confirmed it had received a warning from the FCA and will now start discussions with the regulator.

The company, which sells household insurance and repair service policies for items such as boilers and blocked pipes, has given very little information about what exactly the fine is for. But it clearly didn’t expect the fine to be anywhere near as big, and it has now had to increase its provision for paying it by £30 million.

This is not the first time the FCA has warned it over the way it handles both sales and complaints. In 2011 it admitted to mis-selling some of its three million UK home emergency and maintenance contracts. At the time all outbound sales and marketing activity relating to these plans was suspended, causing its share price to fall by 28% in a day.

It was also fined £750,000 in April 2012 by Ofcom for making excessive silent cold calls.

An Interim Management Statement from HomeServe will be published on 5th February where more details will be announced.

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Do you need this type of insurance?

Stormy weather, like we've experienced across the nation recently, can cause a lot of destruction. Companies such as HomeServe know this and it’s the peak time of year for customers signing up for this added protection.

Many utilities companies, such as British Gas and Scottish Power, also offer these type of services. Although it can provide peace of mind that the cost of repairs or replacements will be covered, it can be extremely expensive.

What it costs

There are a huge range of insurance options available from HomeServe. There's everything from a monthly payment plan of £3.75 for boiler and heating policies or a combined policy from £9.50.

The combined plan covers your gas and central heating along with plumbing, drainage, water supply pipe, electrical wiring, property security and pests. If you opted for this it would cost £114 for a year and you’d need to pay out a £50 excess if you claim on it. Without the excess it rises to £19.50 a month, or £234 in the first year.  

This is a lot of money,  especially when you look at the small print and find out what’s not covered. If your boiler is more than seven years old, for example, you won’t get a replacement but instead £200 towards a new one. The ‘plumbing and drainage’ cover also excludes a number of things such as showers, domestic appliances, immersion heaters, external guttering and rainwater downpipes.

Therefore, if you’re thinking about going for one of these polices it’s important to check the small print first to work out if it’ll actually save you money.

Whatever you do, don’t pay twice for insurance. Check your home insurance policy as you may already be covered for most of thesthings. And when you buy a new item for your home, such as a boiler or heating system, it will almost certainly come with an automatic warranty which will cover you for a fixed time period.  

For more information on deciding what cover you might need read our article Don't burn money on your boiler cover.

See if you can cut your home insurance costs by switching providers

More on home insurance:

How to claim on your insurance after a flood

How I saved £1,200 on my new boiler

The most common home insurance claims

Where to get home insurance for high flood-risk homes

25 ways to cut your home insurance

The true cost of not shopping around for car and home insurance