FastCover and the modified hatchback: demands, needs and undisclosed commission

FastCover's first failing is that it did not provide a demands and needs statement. ICOBS requires an intermediary to identify the customer's demands and needs and to recommend a product that meets them, giving the customer a statement explaining why the recommendation was made. Marcus's modifications were a central part of his demands and needs. The policy FastCover recommended excluded undeclared modifications, and FastCover failed to pass the information to Kestrel. The product therefore did not meet his needs.

The second failing is disclosure of remuneration. ICOBS requires an insurance intermediary to disclose its remuneration, including commission and fees, before the customer is committed. Marcus was not told about the 20% commission or the £75 fee. The third is the Consumer Duty: FastCover must act in good faith, avoid foreseeable harm and enable customers to pursue their financial objectives. Placing a modified car on a policy that excludes modifications, without telling the insurer, is a foreseeable harm. The one-page summary may also have been misleading if it did not highlight the modification exclusion. These failings are relevant because they caused Marcus to buy a policy that did not cover the risk he had explained. The intermediary cannot simply say 'your remedy is against Kestrel': its own advice and placement caused the problem.

The FOS can consider a complaint against FastCover, and possibly against Kestrel, because Marcus is an eligible complainant and the complaint concerns the sale and administration of a retail insurance product. The FOS will ask what would have happened if FastCover had done its job properly. There are two realistic counterfactuals. First, Kestrel might have agreed to cover the modified car, perhaps at a higher premium or with a higher excess; in that case Marcus would have had cover for the theft. Second, Kestrel might have declined the risk even with disclosure; Marcus would then have had the opportunity to go to a specialist insurer. The FOS will decide which is more likely on the evidence.

If the FOS finds FastCover at fault, it can order compensation for the financial loss caused, which here is the £9,000 value of the stolen car, less any amount Marcus would have paid for proper cover. It can also order a refund of the £75 fee or commission, compensation for distress and inconvenience, and interest. The FOS award limit is currently £430,000, so the £9,000 loss is well within it. The FOS cannot punish the firm, but it can require it to put Marcus back in the position he should have been in.

The FCA could use its supervisory powers, for example requiring FastCover to appoint a skilled person to review its sales processes, restricting its permissions or requiring it to carry out a redress exercise. If the failings were serious or systemic, the FCA could begin enforcement action under FSMA 2000, which can lead to a financial penalty, a public censure, or prohibition of individuals from working in regulated activities. The FCA would look at whether FastCover's systems and controls were adequate, whether the failings were repeated, and whether management knew or ought to have known.

FastCover should have recorded Marcus's demands and needs, including the modifications, and provided a demands and needs statement. It should have passed the modification information to Kestrel and checked that the policy covered the modified vehicle. It should have disclosed its commission and fee before Marcus committed to the policy. It should also have explained the modification exclusion clearly. If Kestrel could not cover the car, FastCover should have said so and sought alternative cover. The Consumer Duty requires the firm to focus on the customer's outcome, not simply on placing the policy.