Lloyds, Halifax and Bank of Scotland pay out £13.6m in compensation over misleading home insurance renewal letters
About 350,000 Halifax, Lloyds and Bank of Scotland home insurance customers who had a policy between 2009 and 2017 have been paid an average of £38 each in compensation, after the Financial Conduct Authority (FCA) found they were sent misleading renewal letters. Lloyds Banking Group (LBG), which owns all three brands, has also been fined £90 million for breaching FCA rules – we've full details below.
The financial watchdog says that between 2009 and 2017 LBG sent out about 1.5 million letters telling customers they would get a discount based on their "loyalty", the fact they were a "valued customer" or as part of a "promotion" – but no such discount was ever applied, or intended to be applied.
As a result, the regulator concluded that LBG breached the rules requiring firms to be clear, fair and not misleading in their communications with customers. LBG has now voluntarily paid out more than £13.6 million to affected customers.
This follows news that from next year car and home insurers will be banned from charging existing customers more at renewal. For tips on how to cut costs now, see our Cheap Home Insurance and Cheap Car Insurance guides.
Those who LBG says are due compensation have already been contacted
The FCA says the incorrect "discount" wording affected approximately 1.2 million renewals. If you're one of the 350,000 customers due a payment, you don't need to do anything and should have already been contacted – LBG says it has already written to anyone who's due compensation.
The amount awarded is 5% of the premiums paid on your policy between the relevant dates, plus interest – so while the average payout is £38 per customer it may vary sharply and in some cases could be more.
If you believe you were affected but haven't heard from the relevant bank, it could be worth contacting its customer service team to check – see how to do this on the Lloyds, Halifax and Bank of Scotland websites.
LBG has also been fined £90 million for breaching FCA rules
The discount issue was identified during the course of a separate FCA investigation into the language used in some nine million home insurance renewal letters, where customers were told they were getting a "competitive price", but LBG hadn't checked that this was accurate.
The FCA says that for the majority of customers, particularly those renewing more than once, their renewal quote was actually likely to have been higher than what they were already paying, higher than quotes for new customers and higher than the prices paid by those switching providers.
The FCA concluded that LBG had failed in its home insurance renewal letters to communicate with customers in a way that is clear, fair and not misleading – and has fined the banking group £90.7 million.
However, the watchdog says it hasn't established whether individual customers would have behaved differently had the renewal letters been clear, fair and not misleading – so LBG won't be required to pay any compensation to customers who got a renewal letter that claimed their premium was "competitive".
What do Halifax, Lloyds and Bank of Scotland say?
A Lloyds Banking Group spokesperson, speaking on behalf of all three brands, said: "We're sorry that we got this wrong. We've written and made payment to those customers affected by the discount issue and they don't need to take any further action.
"We thank the FCA for bringing this matter to our attention and since then we've made significant improvements to our processes and how we communicate with customers."