Car insurance market dysfunctional, says Aviva

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The car insurance market is “dysfunctional” and does not reward loyal customers, said the chief executive of Aviva, Mark Wilson.

He said firms were tempting in new customers with prices that were “too low”, which put prices up for existing customers.

Car insurance premiums have gone up by 11% in the last year, according to the Association of British Insurers (ABI).

The typical bill for an annual policy is now £484, it said.

“I think that the UK car insurance market is dysfunctional, I don’t think it works properly,” Mr Wilson told the BBC’s Today Programme.

“The entry level is too low and then it gets put up for all existing customers,” he said.

Aviva has developed a “suite” of products to be launched before the end of the year, which will help reward loyal customers.

“Let’s see how it goes,” Mr Wilson said.

Car insurance is just 2% of Aviva’s total business.

Pay

Shares in Aviva rose by about 0.5%, after the company reported operating profits up by 8% in the first half of 2017.

Sales of annuities, bulk annuities and equity release products all rose, with growth particularly strong in the UK.

The dividend was up by 13%.

However, Mr Wilson refused to say whether he thought he was paid too much.

“I think I’ll let the shareholders answer that one,” he told the BBC.

He said the company was happy to publish the ratio of its highest paid employee to its lowest, as soon as the government had determined how such a ratio should be expressed.

Aviva already pays its employees the National Living Wage and requires all its contractors to do likewise.


Lloyds sets aside another £700m for PPI insurance claims

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Lloyds Banking Group has set aside another £1bn to cover the cost of insurance mis-selling and the treatment of mortgage customers.

Another £700m will cover payment protection insurance (PPI) claims and £283m will be used to repay about 590,000 mortgage holders.

The bank had already put away an extra £350m this year to cover PPI costs.

It came as Lloyds posted half-year pre-tax profits of £2.5bn, 4% higher than last year.

The results are the first since the government sold its stake in the bank.

The repayment to mortgage customers comes after they were charged from 2009 to 2016 for going into arrears.

The Financial Conduct Authority had been investigating the issue, concluding that the charges should not have been applied as the bank did not always do enough to understand customers’ circumstances and check that their arrears payment plans were affordable and sustainable.

The FCA says Lloyds will refund all fees charged for arrears management and broken payment arrangements, and it will also pay any litigation fees that were applied unfairly to customers who were involved in related legal action.

On top of that, it will also offer payments for potential distress and inconvenience.

The bank will itself approach customers to prompt them to make a claim.

Fraud probe

Lloyds became the UK’s biggest force in personal banking as a result of its absorption of HBOS – the former Halifax and Bank of Scotland – at the height of the financial crisis and was bailed out by the government at a cost of about £20bn.

Lloyds is also having to compensate some of its small business customers, who suffered as a result of widespread fraud at its former HBOS branch in Reading.

Victims saw their businesses taken over by so-called specialists recommended by the branch between the years 2003-07.

These “specialists” destroyed a number of the businesses, squandering the money they made on prostitutes and luxury holidays.

Lloyds is in the process of paying compensation to the victims of the fraud, for which it set aside £100m in the first quarter.

It is also currently undertaking a review of what happened.

Crisis legacy

It is the PPI mis-selling scandal, though, that dwarfs all others.

Lloyds has now increased provisions for claims some 17 times. Its chief financial officer, George Culmer, said it was “disappointing” to be having to do it again.

He also offered no guarantee that there would be no further increases in provisions, although he did say the number “looked appropriate in terms of covering us between now and August 2019”.

Lloyds alone has now set aside £18bn. In total, UK lenders have been forced to set aside more than £30bn to cover PPI compensation costs.

PPI became controversial after it was revealed that many customers had been sold it without understanding that the cost was being added to their loan repayments.

The bank’s chief executive, Antonio Horta-Osario, said of the various pots of money set aside for customer redress: “We have a commitment as a management team of putting these legacy charges behind us as soon as possible.”

He admitted, though, that there would “always be redress costs” when running a banking business.

‘Strength’

Laith Khalaf, senior analyst at stockbrokers Hargreaves Lansdown, said that despite the size of the provisions for the various types of misconduct, Lloyds’ performance was satisfactory.

“It’s a sign of Lloyds’ strength that it can shrug off £1.6bn of misconduct charges to post a strong rise in profits,” he said.

“Overall, this is a strong set of numbers from Lloyds, blighted, but not overshadowed, by misconduct costs. The government has exited the bank and is now no longer selling stock in the market, which removes a significant downward pressure on the share price.”

The government had been steadily offloading its Lloyds stake, resulting in about £21bn being returned to the taxpayer.

The government still owns 73% of Royal Bank of Scotland, which was rescu


Bovis sets aside another £3.5m to fix faults with homes

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Housebuilder Bovis has set aside a further £3.5m to deal with customer complaints over flaws in its homes.

Some customers said homes were sold unfinished, and reported plumbing and electrical faults in new properties.

Bovis has already set aside £7m to cover the issue and said the extra provision was to ensure it was “fully resourced” to complete work quickly.

It added it had made “good progress” addressing problems and was confident all legacy issues had been identified.

Strong demand

In February, Bovis said it would put in place a number of measures to correct the faults, including having more staff to deal with complaints, creating a homebuyers’ panel and an improved quality check process.

The company also said it would slow down the pace of building throughout 2017. As a result it will build between 10-15% fewer homes this year.

Bovis added that its profitability in the first half of the year had been affected by higher building costs and an increased level of investment to address legacy issues.

However, it said demand for new homes remained strong, and the average selling price of its homes rose 9% to £277,000.

Earlier this year, Bovis was a takeover target for two rivals – Galliford Try and Redrow. However, Bovis rejected both of their bids and eventually the two suitors abandoned their takeover attempts.


Co-operative Bank agrees £700m rescue package

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The Co-operative Bank has secured a £700m rescue package to stop the lender from being wound up.

Investors have agreed to swap their debt for a stake in the bank.

The bank also said it would to separate its pension fund from the Co-operative Group’s scheme, which has £8bn of liabilities.

The Bank of England’s Prudential Regulation Authority said it had accepted the plan to return the bank to a firm footing.

“Supervisors will remain closely engaged with the bank while the actions announced today are taken forward. Implementation is subject to certain regulatory approvals,” said the PRA, which is responsible for supervising the UK’s banks and insurance companies.

The debt-for-equity swap with hedge funds means that the Co-op Group’s stake in the bank will fall from 20% to about 1%.

The Co-op also said that the relationship agreement between the group and the bank, covering the promotion of bank services to members of the wider business and other matters, “will naturally fall away and come to a formal end in 2020”.

It added that it “is supportive of the plan and intends to vote in favour of the capital raising”.

The Co-op Bank has been been struggling for four years since an abortive attempt to buy 632 branches from Lloyds revealed a £1.5bn hole in its finances.

After failing to find a buyer for the bank, the existing owners, which are predominantly US investment funds, have agreed to write off £443m they are owed and will sell £250m worth of new shares.

Ethical banking

The bank, known for its ethical approach, has been under intense supervision from the Bank of England for many months. Wednesday’s injection of fresh money will spare the regulator the job of stepping in to manage a wind-up of the bank.

The investors will also pump £100m into the bank’s pension scheme over the next 10 years to secure its separation from the wider Co-op Group pension scheme.

Despite its troubles, Co-op Bank’s customers have proved loyal, with nearly four million account holders and mortgage borrowers sticking with the bank despite its financial difficulties and a sex and drug scandal involving its former chairman, Methodist minister Paul Flowers.

The bank says it will continue to run itself with the ethical values it has observed since its founding in 1872.


Building society’s account deadline axed

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A deadline for the closure of current accounts with the Norwich and Peterborough (N&P) has been cancelled, with 30% of customers still to receive letters explaining the move.

It was announced in January that the building society’s brand is to be abolished, some branches closed, and current accounts shut down.

The plan was for customers to move or close accounts by the end of August.

But its owner, the Yorkshire Building Society, now says there is no deadline.

The Yorkshire – the UK’s second biggest mutual – said that about 35% of the 100,000 customers affected had already closed their current account, switched to another bank, or was in the process of doing so.

It was staggering the flow of letters to affected customers to avoid a rush of inquiries, and has now written to 70% of those affected.

The remaining letters will be sent by the end of July.

‘Real shame’

The Yorkshire will close 28 N&P branches this year. The remaining branches will be rebranded as Yorkshire Building Society branches.

A spokeswoman for the Yorkshire said: “We are continuing to work closely with other financial providers in assisting customers to switch or close their account. We’re writing to customers with details of what they need to do next, and asking that customers complete the closure or switch of their account within six months of receiving their letter. We have not set a final date for closure.

“If a customer has not taken steps to close or switch their account within six months of receiving of their letter, we will work closely with the customer on a case-by-case basis to facilitate a switch or closure.”

In the meantime, no customers would be blocked from depositing money or conducting any normal banking transactions via their current account, she said.

The N&P is not part of the Current Account Switching Service so the process will be slower than could have been the case, taking about 12 days.

It was feared that some cash incentives to switch offered by rivals would not have applied, but many providers are now offering the perks to customers moving from the N&P.

Mike Regnier, chief executive of the Yorkshire Building Society, told BBC Radio 4’s Money Box earlier this year that it was a “real shame” that the accounts had to close. He said that too much investment would be required to keep the current accounts compliant with regulation if offered by the mutual. Instead it is to concentrate on savings and mortgage products.


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