AFM imposes a €2.5 million fine for non-integrous business conduct

Secretly changing policy conditions, deliberately communicating a significant premium increase in a vague way, manipulating customer reviews and communicating via email or website without the customer’s explicit consent. It all came up in a recent press release by the Dutch Authority for the Financial Markets (AFM). In this publication, the regulator reported on a €2.500.000 fine it had imposed on a financial services provider with a collective licence. What exactly was going on here?

Unclear, inaccurate and misleading information

The case concerns CAK Dordrecht and its subsidiaries. According to the AFM, the information they provided about their insurance policies was “unclear, incorrect and misleading in important respects”.

Working method deviates from terms and conditions

In the case of household insurance, the terms and conditions stated how the value of the contents would be indexed annually. According to the terms and conditions, indexation would take place using a CBS index value of household contents. In practice, the values were indexed (increased) by approximately 3% in 2021 and 2022, while the penalty decision shows that a decrease of over 6% in 2021 and an increase of almost 12.5% in 2022 had to be implemented in the insured values based on these conditions.

According to the AFM, these terms and conditions were incorrect, factually inaccurate or misleading. The AFM also holds the financial services provider responsible because it allowed the inaccurate information spreading to continue for years, while the organisation was aware of its violation. In addition, information was deliberately withheld from the AFM in response to a previous request for information on this matter.

Hidden communication about premium increase

When there is a significant increase in motor insurance premiums (in the files examined, the increases ranged from 18% to 61%), the financial service provider sends a message to policyholders. However, the wording is rather general and it seems that the financial service provider is trying to disguise the premium increase, according to the AFM.

The short version only mentions the “adjusted premium” and the amount (without mentioning the old premium). The long version mentions that the number of claims has risen sharply and that car parts are becoming more expensive. ‘’As a result, car insurers have adjusted their premiums in recent years, sometimes several times. We have been able to hold off such an adjustment for a long time thanks to our efficient operations and the selection of our target group. Nevertheless, we too cannot avoid a premium adjustment for your car insurance.’’

‘’For the car insurance of your [type of car] with the licence plate […], the half-yearly premium from 12 August 2018 will be: 99.99 euros. This is the full amount you will be charged, including any additional cover and insurance tax. Despite this change, your car insurance premium remains very advantageous.’’

According to the regulator, important matters such as a premium increase should be communicated clearly. As the financial service provider chose the communication options that generated the fewest cancellations, the AFM suspects that commercial considerations played a major role in the design of the communication.

As the financial service provider chose the communication options that generated the fewest cancellations, the AFM suspects that commercial considerations played a major role in the design of the communication.

No information on right of withdrawal

According to the AFM, the information on the consumer’s right to cancel was also not clear enough. In the communication about the premium increase, the financial service provider had to inform its customers about the right to cancel so that they could make an informed choice. The AFM concluded that the omission of this information was unclear or misleading.

Limitation of terms

Another area where the information provided to customers was inadequate was in relation to the limitation of the terms and conditions of a passenger insurance policy. When communicating the terms and conditions of a passenger indemnity insurance policy, the costs of using a solicitor are no longer reimbursed. Non-documented injuries, such as whiplash, are also no longer covered. The financial services provider has given the impression that the changes are insignificant, while there is a reduction in cover.

According to the AFM, the communication of the change in terms was unclear and misleading because it did not explicitly state that the terms had changed. In addition, the release contained several messages separate from this change and the changes were hidden behind a hyperlink.

Shortening the statutory limitation period

The next offence for which the AFM severely criticised the financial services provider was the restriction of the statutory limitation period for making a claim as an insured person. According to the Civil Code, this period is 3 years. According to the AFM, this period cannot be reduced by contract.

Reviews

Another astonishing part of the fine decision concerns the fraudulent use of customer reviews. The financial services company publishes customer reviews on its website. Employees are instructed not to post negative reviews from customers who are leaving, or to post them less prominently. However, the website states that less positive experiences will also be posted.

During its investigation, the AFM found emails encouraging employees to write positive reviews (4 and 5 stars) themselves. In order to prevent Google from labelling these reviews as ‘fake’, employees are asked to do this from home.

Active consent

An interesting aspect in the fine decision concerns the subject of “consent in a digital closing lane”. The AFM believes that a customer should actively consent to agree to terms and conditions and then receive these terms and conditions digitally. The financial services provider worked with a pre-completed ‘tick box’. The AFM is of the opinion that with a pre-filled ‘tick box’ there is no explicit consent. There is in fact opt-out instead of opt-in.

The AFM believes that a customer should actively consent to agree to terms and conditions and then receive these terms and conditions digitally.

No disclosure of remuneration policy

Another legal requirement the financial services provider failed to comply with was the inclusion of a description of the remuneration policy on the website and in the management report, as part of the annual report. The AFM also mentions this violation in the fine decision.

Affiliated companies

The central licence comes into play at several points in this case. The financial services provider in question has a licence with affiliated undertakings. Offences committed by these entities are attributed to the group. This makes it clear that breaches committed by different companies may lead the regulator to conclude that there has been a ‘systematic breach’. All such breaches will then be attributed to the central licence holder.

Failure to conduct business with integrity

Given the significant number of overlapping breaches of the law in this fine decision, the AFM concludes that there is a case of non-integrated business operations. An important reason for this conclusion is that the company was aware of the non-compliance for some time and did not do anything about it. Unclear, inaccurate or misleading information undermines confidence in the financial services provider concerned and in the financial markets.

Given the significant number of overlapping breaches of the law in this fine decision, the AFM concludes that there is a case of non-integrated business operations.

Lessons learned

This fine is not yet final. The AFM’s publication of the current state of play on 28 April 2023 shows that the company has lodged an appeal against it.

There are a number of interesting aspects to this fine decision from which the following lessons can be drawn:

1. In this case, it had long been known within the organisation that the law was being broken. Yet no action was taken to remedy the situation. The AFM holds the company responsible for this. That is why it is important to put an end to violations as soon as possible. Of course, if you deliberately allow violations to go on for years, you can expect little sympathy from the regulator.
2. With this fine, the AFM provides clarity on how to communicate when adjusting conditions and premiums. This also applies to improvements in conditions. Indirect and hidden information is qualified by the regulator as unclear, incorrect and/or misleading.
3. The fine decision shows that the financial company does not agree with the AFM’s findings. The fact that an appeal has been lodged also suggests this. Of course, one can disagree on the qualification and seriousness of the breaches of standards. In this case, there seems to be little recognition of the mistakes that have apparently been made for years. If the regulator finds a lack of reflection and self-criticism, it has no choice but to act harshly. In such situations, it is important to remain as objective as possible and to maintain a dialogue based on undisputed facts and circumstances. It may be helpful to have an independent and expert third party to guide this process.

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