The Financial Conduct Authority (FCA) has fined Stonebridge International Insurance Ltd (Stonebridge) £8,373,600 in relation to sales of accident insurance products for breaches of Principle 3 (management and control) and Principle 6 (customers’ interests) of the FCA’s Principles for Businesses. Stonebridge outsourced the sales and customer services operations of its personal accident, accidental death and accidental cash plan insurance products (underwritten by Stonebridge) to various authorised intermediaries. The FCA final notice identifies a number of failings including weaknesses in systems and controls, poor oversight of outsourced functions, inadequate information disclosure at point of sale and a failure to take reasonable steps to ensure that customers were treated fairly.


Between April 1, 2011 and December 31, 2012, Stonebridge sold its accident products, through outsourcing companies, to customers over the phone on a non-advised basis across the UK, Germany, France, Italy and Spain. Premium costs ranged between £6.19 and £7.17 for single cover and £8.76 and £12.93 for family cover, depending on the product. Stonebridge earned revenues of approximately £93.8 million during the relevant period. Stonebridge identified its target market as being persons who typically were in the middle-to-low income bracket, without a university degree or professional qualification. The FCA argues that, given its sales strategy, Stonebridge should have had in place robust controls to ensure compliance with regulatory rules, particularly Treating Customers Fairly.

A number of reviews were undertaken in relation to Stonebridge’s sales practices during 2012. First the Financial Services Authority (the FCA’s predecessor) reviewed a sample of sales calls which raised concerns that customers were buying products without fully understanding the extent of cover provided. Although Stonebridge did not agree with the FSA’s findings, an independent legal review was commissioned to investigate. The review concluded that while certain areas required improvement, there were no serious concerns in respect of Stonebridge’s sales process. Stonebridge then, on its own initiative, commissioned a review of 1703 post-sales cancellation calls of which 16 per cent were deemed to have resulted in potential customer detriment. These findings were reported to the FSA at which point the regulator requested that Stonebridge appoint a skilled person to review sales and post-sales cancellation calls in the UK. The skilled person found there was a risk of potential customer detriment but no evidence of actual detriment. Whilst there was no indication of wilful mis-selling, deficiencies in the sales process were identified and consequently the regulator launched an investigation.

The fact that deficiencies in Stonebridge’s sales process were noted but no serious concerns were identified reveals the shift in regulatory focus, since April 2012, toward greater emphasis on conduct issues and how firms mitigate risks when they are identified.

Key failings

The FCA’s final notice identifies a range of failings which can broadly be summarised as weaknesses in the following areas: the sales process; systems and controls; training; compliance; and quality assurance. The sales scripts and call flows which provided guidance to sales personnel at the outsourcing companies were poorly designed by Stonebridge. The sales process provided insufficient information about the range of products available, payment options and exclusions and limitations of cover. Some customers with families were channelled toward more expensive family cover without being offered the option of individual cover. Firms should ensure that customers are given appropriate information including the different levels of cover available to them at the point of sale in order to make an informed decision as to which level of cover is appropriate to their needs.

Firms should take note of the significant failings in Stonebridge’s oversight of the outsourced operations detailed in the final notice. Sales personnel often did not provide customers with information in a clear, fair and balanced manner and, in some cases, customers were given inaccurate or misleading policy information. A further issue was the emphasis during sales calls on cancellation rights. Customers were told that if they found that the policy was not suitable for their needs it could be cancelled without incurring any fees, however, when customers later tried to cancel their policies they faced barriers to cancellation. Due to these barriers many customers who tried to cancel instead opted for reduced cover, but in a significant number of cases customer services personnel failed to provide appropriate and comprehensible information about the policy change.

The FCA investigation also uncovered weaknesses in Stonebridge’s systems and controls relating to the oversight of the outsourcing companies. A combination of inadequate management information and ineffective governance at board level and the various executive committees meant that Stonebridge could not effectively monitor outsourced functions and therefore failed to manage and mitigate risks to customers. Internal audit and review processes, conducted before and after the customer services outsourcing company was created, identified serious deficiencies within Stonebridge’s outsourcing policies and procedures. The customer services function was operating without approval from the compliance department for the procedures, training and scripting used. Furthermore the training material, designed by Stonebridge, was found to encourage poor selling techniques, was not consistent with regulatory requirements and did not consider good and poor customer outcomes. In order to comply with its customers’ interests obligations under Principle 6, the FCA expects insurers that outsource customer service functions to review the training material used by its intermediaries, ensure it is suitable and take reasonable steps to ensure that training is being undertaken to a satisfactory standard.


This is the second largest insurance fine issued by the FCA (after HomeServe) and is particularly significant because it is against an insurer rather than an intermediary firm. Stonebridge’s business model and sales strategy were heavily criticised for targeting vulnerable customers with low value products. Recent thematic reviews and enforcement action have highlighted products with high sales volumes and low claims ratios as an area of concern for the regulator and firms offering such products should ensure their sales process and customer services operations satisfy the regulatory requirements in terms of product information, cancellation and customer needs.

Stonebridge is carrying out an independent review of its past sales in the UK and EU and is contacting affected customers to determine whether they should be compensated as a result of its poor sales practices. The firm has already paid redress of £400,000 to UK customers and has ceased distribution of the accident insurance products in question. In addition, Stonebridge has taken a number of steps to address the failings identified.

Firms operating a similar business model should ensure their products and processes comply with FCA expectations on conduct risk, including an executive management team and governance structure with adequate oversight of sales and customer service functions, product design and policy documentation that is clear, fair and balanced, effective systems and controls to ensure customers are treated fairly and customer services outsourcing arrangements that are regularly monitored and reviewed.

View FCA Final Notice – Stonebridge International Insurance Ltd, 7 August 2014