According to the regulator, the insurer "failed its customers" by not providing enough information about the key terms of its policies, and did not properly monitor its sales calls. The fine related to telephone sales of personal accident, home emergency and motor breakdown policies worth £92.9m between April 2010 and April 2012.
Insurance law expert Alexis Roberts of Pinsent Masons, the law firm behind Out-Law.com, said that insurance product providers and distributors needed to have a "clear demarcation" and allocation of regulatory responsibility in relation to product design, launch, marketing and sales.
"The fine is particularly interesting because the FCA made a number of negative findings in relation to Swinton's business model during the period, finding that Swinton adopted a business strategy geared to boosting profits at each stage of the process – design, launch and sale," he said. "The FCA found that this strategy meant that it failed to ensure customers' interests were put at the heart of its business."
"Separately, there is an ongoing competition study by the FCA on the impact of current practice on consumers in this market. The market study will look at the nature of competition in these markets, in particular whether these products represent good value for money and whether consumers understand what they are getting with their policy," he said.
The FCA is currently conducting a number of 'thematic reviews' of the insurance market, which it uses to assess a current or emerging risk relating to an issue or product within a sector or market, as well as a wider market study into the add-on insurance market. It published the results of its review of motor legal expenses insurance (MLEI) last month, and it has said that it intends to consider these as part of its approach to general insurance add-ons.
According to its final notice against Swinton, the FCA found that the company did not explain its products clearly enough or tell customers that the policies were optional and separate to other core insurance products. In addition, it did not provide enough information about terms, limitations and policy cancellation processes. The nature of the failings, combined with weak sales scripts and ineffective monitoring of sales calls, meant that "every sale could have been a mis-sale", the FCA said.
The fine given to Swinton reflected "the number and seriousness of the issues raised during the investigation", the FCA said. Although the firm received a 30% early settlement discount, the fine would have been higher if it had not taken part in an FCA study into effective compensation letters and if the insurer's new management had not taken "swift action" after discovering the problems. Swinton has set aside £11.2m in addition to the fine to compensate affected customers.
"I recently told the insurance industry that we were taking a strong interest in the area of add-ons, and our first competition study will take a far-sighted view of the impact of current practice on consumers in this market," FCA chief executive Martin Wheatley said.
Insurance expert Alexis Roberts said that the case was an "early and high-profile example of the potential impact of the FCA's core initiatives around ensuring customers receive value for money", but said that add-on products would "certainly remain an important feature of the general insurance market".
"Distribution models differ, but in many cases it will be the distributor that decides which add-on products to deploy, their design and how they are launched, and also have responsibility for sales," he said.
"This division of responsibility between product provider and distributor is commonplace in the modern general insurance market - making it vital that distributors and insurers agree and clearly set out their respective responsibilities in relation to each stage of the product cycle, who takes ownership of each and who ultimately will take responsibility to the regulator," he said.