FSA fines AIG’s UNAT Sub $1.26 Million for Call Center Violations

The UK’s Financial Services Authority (FSA) has fined UNAT DIRECT Insurance Management Limited £640,000 ($1.26 million) for failings relating to a lack of effective control and oversight over its appointment of call centers.

“UNAT – an indirect, wholly-owned subsidiary of American International Group Inc (AIG) – used nine call centers to sell general insurance products (mainly personal accident insurance policies) underwritten by another AIG group company,”; the FSA explained.

The insurance regulator went on to note: “UNAT had a procedure in place to check whether call centers were authorized by the FSA, the extent of their compliance resources and their processes for compliance monitoring and data security. However, the firm failed to prevent its staff from instructing the call centers to start selling to consumers before the due diligence process had been completed.

“Furthermore, senior management did not receive adequate management information to enable them to satisfy themselves that the call centers were suitable to carry out insurance sales.”;

As a result the FSA said that there was a “lack of effective control and oversight,”; which “meant UNAT did not carry out an acceptable level of due diligence before the call centers began selling.”; It cited one case where “UNAT had not completed its due diligence over 250 days after the call center had begun selling.

“In another case, a call center sold insurance when it was not authorized by the FSA to do so.”; UNAT’s compliance team had apparently “identified concerns about this call center’s regulatory status at an early stage,”; said the FSA. However it then “failed to resolve these concerns and the unauthorized call center continued to sell around 4,000 policies to consumers over a period of six months prior to it becoming FSA authorized.”;

Margaret Cole, Director of Enforcement at the FSA, stressed: “Selling general insurance products to consumers through call centers involves greater risk. UNAT was aware of the higher risk but failed to carry out proper checks on the call centers it used. UNAT’s failure to have effective control over its due diligence process exposed customers who bought policies from the call centers to an unacceptable level of risk that they would not be treated fairly. The FSA will impose significant fines on general insurance firms whose management of call center risks falls below acceptable standards.”

The time period involved stretched from January 14, 2005 to March 22, 2007. During that period over 150,000 insurance products were sold though the nine call centers.

UNAT ceased all sales of general insurance through call centers as of March 22, 2007, “pending the outcome of a review,”; the FSA continued. “UNAT has improved its systems and controls following the recommendations in the review. Since the discovery of these issues, UNAT has been working with the FSA to ensure that no customer has suffered loss by putting in place a comprehensive restitution package.”;

The bulletin also noted that UNAT had received a 20 percent discount “for settling in Stage 2 of the FSA’s executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £800,000 [$1.578 million] on UNAT.”

So far neither AIG nor UNAT have commented on the fine.

Source: Financial Services Authority – www.fsa.gov.uk