Hastings Direct fined £735,000

The fine by the Financial Service Authority (FSA) relates to the cancelling of 4,550 incorrectly priced car insurance policies.

During two separate periods between July and September 2007, Hastings discovered due to an internal system error, inaccurate insurance quotations were given to customers, which resulted in some of them paying significantly lower premiums than they should have.

They cancelled the policies but in doing so failed to give sufficient consideration to paying the premium shortfall to the insurance provider or investigating other possible remedies.

The FSA found the firm had invoked a cancellation clause to cancel the policies which the FSA considers was not generally intended to be used in circumstances such as these.

The FSA said the way in which the policies were cancelled and the service the firm gave to its customers following the cancellation showed the firm focussed on the financial cost to itself and did not properly consider the alternatives or the detrimental effect on customers.

The firm has now strengthened the controls surrounding customer treatment and agreed with the FSA to write to all affected customers and review the compensation it offered to ensure they are treated fairly.

Hastings agreed to settle the case at an early stage, otherwise the fine would have been 1,050,000.

Margaret Cole, FSA director of enforcement, said: "The FSA has stressed to all firms the importance of treating their customers fairly but it is clear from our investigation that Hastings put its own interests ahead of those of its customers. The firm failed to consider properly what effect cancelling policies might have on its customers which illustrates that the fair treatment of customers had not been embedded into its corporate culture as our TCF principle clearly requires."

A Hastings Direct spokesman, Jeffrey Roberts said: "In June 2007, Hastings Direct became aware that a software systems error had incorrectly rated policies issued to around one percent of customers.

"After assessing the situation, Hastings contacted every affected customer and refunded unearned premium to those who decided to discontinue their cover.

"Hastings will pay 735,000 to the FSA and has apologised to customers for any inconvenience caused.

"As part of the settlement, Hastings will write to affected customers to explain they may be entitled to compensation.

"Whilst Hastings does not consider the use of a cancellation clause is of itself unfair, it does accept that in this instance these particular processes and procedures could have been better and has acted quickly to rectify them.

"Hastings is pleased the FSA has acknowledged the breach was not deliberate. The company has taken substantial remedial action in relation to its systems and management."