Insurance firm fined €3.35m for 28 breaches of regulations

THE CENTRAL Bank has imposed the biggest fine in its history – a €3.35 million penalty – after it uncovered 28 breaches of regulations at an insurance company over a five-year period to April 2011.

Combined Insurance Company of Europe is also refunding €2.15 million to customers holding 7,917 policies as a result of the investigation.

The company sold insurance policies to protect against accidents and sickness through a network of self-employed sales agents.

The Central Bank discovered the agents, whose pay and rewards were based on “high pressure sales” of insurance policies to customers, “acted dishonestly, unfairly and unprofessionally”.

The company’s UK subsidiary was also fined £2.8 million (€3.3 million) by the British regulator for failing to manage sales effectively and failing to handle customers’ claims and complaints fairly.

The Central Bank found the “tied agents” wrongly obtained customers’ bank account details and used them to set up policies in the names of other people. They collected premiums but failed to set up new policies with the money, and sold replacement policies to customers which have fewer benefits or were more expensive than old policies.

The Central Bank found the firm had a pay and rewards system for staff that created a “high pressure sales environment”, with agents under considerable pressure to produce large volumes of sales.

This in turn led to some of the company’s sales agents “failing to act fairly and professionally in the best interests of the firm’s customers”, the Central Bank said.

The firm, owned by US insurer Ace, has refunded €564,000 over 3,239 policies sold between October 2009 and June 2010. The Central Bank estimates a further €1.586 million will be repaid over 4,678 policies sold from 2006 to 2009, a period still under investigation. The firm has offered refunds on policies sold from September 2010 to April 2011.

“This is the largest fine issued by the Central Bank and reflects the seriousness with which we view fundamental regulatory failures, including inadequate systems and controls,” director of enforcement Peter Oakes said. The fine eclipses the previous record – a €3.25 million penalty imposed on Quinn Insurance, whose cash reserves were used by businessman Seán Quinn to cover losses on Anglo Irish Bank.

Among the litany of regulatory abuses found at Combined Insurance was the sale of 6,100 policies by unregistered agents from October 2009 to June 2010. Some agents “recklessly, negligently and deliberately misled customers as to the real or perceived advantages of the firm’s products”, the Central Bank said.

Combined Insurance said it had “taken decisive action to correct these issues by appointing a new board of directors and management team”. The insurer, which made a profit of €8.5 million in 2010, has not sold any policies to new customers since April.