UK watchdog finds potential mis-selling among insurance agents

(Recasts, adds insurance broker comment, background)

By Huw Jones

LONDON, July 22 (Reuters) - A British financial watchdog opened the way to another possible round of costly compensation claims on Friday, saying it had found evidence that insurance agents had falsified documents, faked signatures and saddled people with products that would never pay out.

The Financial Conduct Authority (FCA), set up in 2013 to crack down on customer rip-offs, said its study of 15 unnamed insurance companies and their agents found widespread examples of poor practice.

However there was no indication of the likely size of any compensation payouts and whether they would be on the scale of other scandals such as the mis-selling of payment protection insurance (PPI), which has cost the banks billions of pounds.

The FCA cited one firm with a network of motor dealer agents for example which it said had failed to discipline an agent after identifying mis-selling, including the falsification of customer documentation, the FCA said.

Agents from another firm mis-represented themselves by claiming to be from the firm that initially sold the appliance to the customer, while other agents sold travel insurance to customers with pre-existing medical conditions which would not be covered by the policy.

Rather than giving the sector time to put its house in order, the watchdog ordered so-called Section 166 reviews on two firms, meaning they will have to pay for an outside expert to review their policies against mis-selling.

It has told two other firms to cease sales activities. These four firms and a fifth must stop taking on new agents.

The FCA did not name any of the companies involved but said it had found examples of potential mis-selling and "customer detriment" as a result of agents' actions at a third of the insurance firms included in the review, meaning compensation claims are possible.

EVIDENCE OF MIS-SELLING

Matt Browne, insurance regulatory director at consultants PwC, said the review will likely come as a shock and trigger a review of agents. "Some firms may have to pay redress to customers, as evidence of customer detriment including products being mis-sold was found by the FCA's review," Browne said, without estimated the scale of any payouts.

The British Insurance Brokers' Association said it was confident the current industry model can offer customers appropriate insurance, especially in well-managed, properly supervised organisations.

The Association of British Insurers said that while the review looked at brokers and retailers rather than insurers, it raised important issues for the wider insurance market.

Agents are not directly regulated by the watchdog but must be subject to scrutiny by the insurance firms, which are regulated.

Britain's general insurance sector comprises 400 insurers and 5,100 intermediaries that are directly authorised. Some of the firms have over 20,000 agents.

The FCA will write to all chief executives of general insurance companies, telling them what actions it expects them to take to address problems raised by the review.

It will also consider whether enforcement action is needed, or changes to rules or in the way firms are authorised.

The watchdog's 43-page review covered a sample of 15 insurance firms which had 10,594 agents operating in 1,684 locations. It said about half the insurance companies could not show they have understood the nature, scale and complexity of risks from agents. (Additional reporting by Carolyn Cohn; Editing by Ruth Pitchford and David Holmes)