FCA cracks down on MGA for unfair fees

The FCA, in a public notice, said Policy Excess Insure Limited had an automatic renewal term that ‘purported to allow the firm to charge consumers with an administration fee for not renewing the policy’.

‘Unfair’ renewal fees

Publishing the details of the firms failures on its website, the FCA said Policy Excess Insure, trading as Nova Direct, had terms on its website that allowed it to charge customers £4.99 if they opted out of the contract seven days before renewal.

Furthermore, there were terms for a £9.98 charge for customers cancelling the auto renewal less than seven days after renewal of the policy.

The FCA called the fee charging ‘unfair’, adding: “The default position under national law is that when a contract comes to an end, there is no obligation on the parties to pay an amount to end the contract, as the contract simply expires.”

In other failings, the FCA had concerns on cancellations and continuous payment authority.

The FCA said Policy Excess Insure Limited had wordings that meant if consumers chose to cancel their automatically renewed policies before the start date, then the premium paid would not be refunded.

This was ‘unfair’ because it ‘allowed the firm to retain premiums paid by consumers for a service they would not receive’.

On Continuous Payment Authority, one of MGA’s terms stated that if customers authorised a CPA, “you permit us to charge any sums due to your card and to take payments as and when they fall due”. This was again considered ‘unfair’ by the regulator, because it allowed them to charge unspecified amounts at their own discretion.

Policy Insure actions

Policy Excess Insure Limited, which describes itself as an underwriting agency and managing general agent working with brokers, affinity groups and insurers on bespoke schemes, has now made changes to fall in line with its regulatory requirements on customer treatment.

The MGA agreed the continuous payment authority ‘lacked transparency’. Wordings are changed so that the CPA is only allowed to charge for insurance premium due.

Elsewhere, Policy Excess Insure Limited changed its wordings to clarify that when a premium is taken before the start date of the automatically renewed policy, then the premium will be refunded in full if the policy is subsequently cancelled. It has also removed the fees around contract renewal declinations.

The FCA said cases such as the Policy Excess Insure Limited one should be noted by insurance firms as part of their risk management.

It said: “Even if firms have not given an undertaking or been subject to a court decision, they should remain alert to undertakings or court decisions concerning other firms as part of their risk management.

“These will be of potential value in showing the likely attitude of the courts, the FCA, the CMA or other regulators to similar terms or terms with a similar effect.”

The crack down on the MGA comes at a time when the FCA is paying increasingly close attention to commissions and fees in certain product lines. 

In property owners, the FCA is considering whether to cap or limit commission following an investigation into the sector. 

Four years ago, the FCA published its findings following a probe into tradesman. It found wholesalers were slapping on administration charges and there was little oversight or monitoring in the distribution chain. 

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