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FSA Fines AIG GBP640,000

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FSA Fines AIG GBP640,000

Last Update: 5/21/2008 6:43:22 AM

Edited Press Release

LONDON (Dow Jones)–The Financial Services Authority (FSA) said Wednesday it has
fined UNAT DIRECT Insurance Management GBP640,000 for failings relating to a lack
of effective control and oversight over its appointment of call centres.

UNAT, an indirect, wholly-owned subsidiary of American International Group (AIG),
used nine call centres to sell general insurance products (mainly personal
accident insurance policies) underwritten by another AIG group company.

UNAT had a procedure in place to check whether call centres were authorised 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 centres
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 centres were suitable to carry
out insurance sales.

This lack of effective control and oversight meant UNAT did not carry out an
acceptable level of due diligence before the call centres began selling.

In one case, UNAT had not completed its due diligence over 250 days after the
call centre had begun selling.

In another case, a call centre sold insurance when it was not authorised by the
FSA to do so - while UNAT’s compliance team identified concerns about this call
centre’s regulatory status at an early stage, UNAT failed to resolve these
concerns and the unauthorised call centre continued to sell around 4,000 policies
to consumers over a period of six months prior to it becoming FSA authorised.

The FSA’s director of enforcement, Margaret Cole, said: “Selling general
insurance products to consumers through call centres involves greater risk.

“UNAT was aware of the higher risk but failed to carry out proper checks on the
call centres it used. UNAT’s failure to have effective control over its due
diligence process exposed customers who bought policies from the call centres 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 centre risks falls below acceptable standards.”

Between Jan. 14, 2005 and March 22, 2007, over 150,000 insurance products were
sold though the nine call centres.

UNAT ceased all sales of general insurance through call centres on March 22, 2007
pending the outcome of a review.

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.

UNAT received a 20% 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 GBP800,000 on UNAT.