FCA fines Liberty Mutual Insurance for poor oversight of complaints handling

​A summary of the fine imposed upon Liberty Mutual, highlighting the FCA’s increased focus on outsourcing arrangements.


The Financial Conduct Authority (FCA) has fined Liberty Mutual Insurance Europe SE (Liberty) £5,280,800 (including a 30% Stage 1 discount) for breach of Principles 3 and 6 of the FCA Principles for Businesses in its oversight of mobile phone insurance claims and complaints which were handled through a third party. This marks one of the largest ever FCA fines for outsourcing failures. Mark Steward, executive director of enforcement and market oversight at the FCA, said of the FCA’s decision in relation:

“Fair, effective, and prompt settlement of claims is a fundamental requirement of mobile phone insurance, and customers should expect that any claim they make, or any subsequent complaint they lodge, will be dealt with fairly. Insurers must put in place adequate measures to make sure that claims and complaints are handled fairly, especially where those functions are outsourced.”

Liberty is a large UK insurance underwriter authorised to carry out and effect contracts of insurance across a range of insurance types. In 2010, Liberty entered into a new relationship in the UK with a third party retail coverholder (the Coverholder) to enable the Coverholder to provide mobile phone insurance (MPI) to retail customers in the UK, underwritten through Liberty. The Coverholder and Liberty’s parent entities had an established relationship in the USA, and the Coverholder was a large market participant in MPI markets in the USA and elsewhere (other than Europe). The UK venture was intended to support the pre-existing relationship.


The relevant chronology can be summarised as follows:

Date Description of events
2008-2010 Liberty’s senior management discussed the proposed relationship with the Coverholder, recognising that the new, consumer-facing, venture carried increased regulatory risk. Despite this, Liberty undertook a limited risk assessment and did not adequately plan for ongoing monitoring.
05 July 2010

Liberty entered into a contract to enable the Coverholder to provide MPI to retail customers in the UK, underwritten through Liberty.

Under the terms of their arrangement, the Coverholder agreed to undertake all administrative functions associated with the MPI on Liberty’s behalf, including all claims and complaints handling functions. Liberty delegated the oversight of the relationship to its Audit Committee.

July 2010 Liberty began selling MPI through third parties engaged by the Coverholder.
October 2010 Liberty’s Compliance function sought certain information about the Coverholder’s business and approach to complaints to better understand the process.
May 2011 The Audit Committee considered a report from Liberty’s Compliance function which noted that nine complaints had been received relating to the MPI business for the quarter and noted that this was a higher number of complaints when compared to Liberty’s own business.
November 2012 The Audit Committee agreed a proposal that Liberty’s Internal Audit function should conduct a review as part of the 2013 auditing schedule. This resulted in the Compliance function attending the Coverholder’s offices and receiving an “end-to-end” description of the Coverholder’s complaints process in late 2012.
December 2012 Liberty noted that its existing Treating Customers Fairly Policy (the “Policy”) would need to be revised to document some of the additional measures necessary when dealing with retail customers. The Policy was actually updated in February 2014.
June 2013 The FCA published a Thematic Review identifying concerns as to how market participants handled claims and complaints arising from MPI.
October 2013 Liberty met with the Coverholder to discuss the issues raised in the Thematic Review and requested management information for each of its MPI programmes.
December 2013 Liberty introduced monthly meetings with the Coverholder where the parties discussed claims and complaints information.
February 2014 Liberty updated the Policy with additional measures to address retail customers.
June 2014 Liberty’s Internal Audit function undertook an in-depth review of the Coverholder’s processes, identifying in an Internal Audit Report that there was a high proportion of claims denials that were overturned upon complaint.
March 2015 The FCA undertook a follow-up Thematic Review, in which Liberty was required to participate. The purpose of the Thematic Review was to assess whether firms were responding appropriately to the findings of the initial Thematic Review.
June 2015 Once it had received documentation provided to the FCA by the Coverholder in connection with the Thematic Review, Liberty conducted work to understand specific MPI claims and complaints processes. The Coverholder also reviewed its processes as part of the Thematic Review.
January 2016 The Coverholder commenced a voluntary redress exercise, offering £3,963,540 to customers who had been treated unfairly.


The FCA concluded that between 05 July 2010 and 07 June 2015 Liberty breached Principle 3 (Management and Control) and Principle 6 (Customers’ Interests) of the Principles for Businesses, by failing to organise and control its affairs responsibly and effectively, with adequate risk management systems, and failing to pay due regard to the interests of its customers and treat them fairly.

The failings were considered to be serious because they caused a risk of loss to individual consumers, revealed systemic weaknesses in Liberty’s internal controls and arose from failings on the part of senior management who delegated compliance oversight to a function that lacked the relevant resources and expertise.


This case highlights the FCA’s focus on outsourcing arrangements and makes clear that the outsourcing of services does not amount to an outsourcing of a firm’s responsibility or liability for compliance with regulatory obligations. The voluntary redress exercise prior to the FCA’s enforcement action, as well as cooperation with the regulator reduced Liberty’s fine, which would otherwise have been £7.5m.

The FCA cited a lack of oversight from the Board and senior management, with the implementation of an enhanced risk conduct risk framework being too slow. Had the Senior Managers and Certification Regime applied to Liberty between July 2010 and June 2015 when the misconduct took place, it is likely that it would have resulted in clearer responsibility for the mobile phone insurance business on the Board, and as a result many of the failings may have been mitigated or avoided.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.