Undertaking given to FCA under Consumer Rights Act 2015 concerning unfair terms in insurance broker contract

Policy Excess Insure Limited (trading as Nova Direct), gave the undertaking in relation to three terms in its insurance broker contract (for the sale of motor breakdown, home emergency, home appliance, gadget, bicycle and travel insurance policies): 

• Continuous Payment Authority (CPA) term: which did not clearly reflect that the CPA is only in relation to collecting sums due for insurance premiums, as and when they fall due; 
• Cancellation term: which stated that the premium would not be refunded to consumers for automatically renewed policies, where consumers cancelled in advance of the policy start date. In addition, the term stated that there would not be a 14-day cooling off period for policies which had automatically renewed; and
• Automatic renewal term: which purported to allow the firm to charge consumers with an administration fee for not renewing the policy.

Why did the FCA have concerns? 

CPA: One of the terms stated that if consumers authorised a CPA “…you permit us to charge any sums due to your card and to take payments as and when they fall due”. The FCA was concerned that as drafted, the term was likely to be considered unfair because it had the potential to give the firm the ability to charge consumers unspecified amounts at the firm’s discretion. 

Cancellation: A second term stated that if consumers chose to cancel their automatically renewed policies before the start date, then the premium paid would not be refunded.  The FCA was concerned that this term was likely to be considered unfair because as drafted, it allowed the firm to retain premiums paid by consumers for a service they would not receive.  Further, the term was likely to be insufficiently transparent as it did not reflect how the firm acted in practice. In addition, the term did not allow a 14-day cooling off period for policies which had automatically renewed which, is not in line with the ICOBS rules. 

Automatic renewals: This term allowed the firm to charge a fee to consumers who chose not to renew the policy.  The FCA was concerned that this term was likely to be considered unfair as, consumers would not expect to pay a fee to exit their contracts at the end of their policy and, should not have to pay a fee to avoid being entered into a new contract, especially as it was a process consumers were automatically enrolled into, when purchasing a policy.

The undertaking therefore provides a useful insight into the FCA's work in the area of unfair terms and consumer rights, which will no doubt continue under the Consumer Duty.  Firms should take this opportunity to review their own consumer contracts for any similar terms (and if there are any, update them appropriately).