Senior bosses at Lloyds have been ordered by an angry City regulator to ‘sort out’ the Halifax pet insurance fiasco that has led to dogs and cats being put down or handed over to rescue charities.
Sources at Lloyds say the Financial Services Authority is ‘losing patience’ with the bank and demanding that it ‘gets a grip’ and provides ‘fair, reasonable solutions’.
The crisis emerged last year when Lloyds abruptly stopped offering pet insurance through its Halifax and Lloyds brands.
Existing policyholders whose animals suffer costly, ongoing conditions cannot now find alternative cover – and must pay cash for any treatments, or face having their pets put down.
Insurance regulations include a broad principle relating to firms’ long-term commitments to consumers and it is believed this has prompted the FSA’s intervention.
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A Lloyds insider described the FSA’s attitude as ‘robust’. It is not clear whether this development could lead to blanket offers of compensation, but Financial Mail is aware of large sums being paid to policyholders who complain.
Halifax pet insurance for four-year-old rottweiler Bertie was withdrawn on February 14 and his owner, Sarah Towers, 43, from Lancaster, fears he may now have to be put down.
Bertie has a rare condition called eosinophilic gastroenteritis for which he takes daily medication costing £6,000 a year.
Sarah, who works in administration, is single and says she cannot afford to pay, particularly as Bertie could live for another six years. She has already sold her car, but says her savings will run out in four months.
Another policyholder, Gail Skinner, 52, from Bridgwater, Somerset, has three dogs – two-year-old Stitch, Kis, six, and Phee, eight – all previously insured with Halifax. Stitch has a hip problem while Phee suffers from a heart complaint and Gail will not be able to get cover for these conditions elsewhere. Like Sarah, Gail chose Halifax because it offered ‘lifetime cover’.
This is where a pet’s ongoing medical conditions are covered year after year on renewal of the policy, subject to annual limits. The policy is more expensive than a low-cost 12-month policy, which only covers particular conditions for one year, but Gail and Sarah felt they were making a prudent long-term choice.
Gail, and her husband Richard, 60, a retired gas safety engineer, say they would now struggle if either Stitch or Phee became seriously ill. ‘I’m living in fear of one of the dogs becoming ill and the vet’s bills escalating,’ says Gail, who travelled to Birmingham last week for the Crufts dog show, which ends today.
‘I thought I had done the right thing in taking out lifetime insurance, even though it was expensive. It’s a nightmare. Stitch and Phee are not sick now, but the odds are not in my favour and my dogs are still relatively young.’
How did Halifax get into such an insurance mess?Marc Gander, founder of the Consumer Action Group, a forum set up to lobby for the rights of consumers, says Halifax’s underwriters sold ‘lifetime’ pet cover it could not sustain.
He believes all policyholders, where their pet has a pre-existing and therefore uninsurable condition, should be paid full compensation. ‘The executives at the bank who presided over this business should hang their heads in shame – it is a mess,’ he says.
‘You cannot offer a product of such importance, only to pull the plug when it no longer suits. This is not car or home insurance where consumers can go elsewhere. Halifax is condemning animals to death.’
Gander believes cracks appeared when Halifax switched underwriter in 2005 and again in 2008. It also raised the compulsory excess for dogs from £60 to £100 and for cats from £50 to £75 in 2009. And it pushed up premiums of customers who had made claims. By then it was too late to balance the books.
One industry source says: ‘The pet insurance market took a hit in the downturn as many people were not taking out cover or were cancelling policies. Without lots of new customers coming in, Halifax’s business was doomed. The holes in its inadequate underwriting would have just got wider and wider. Sadly, it’s the customer who pays the price.’
Sarah’s problems are more pressing. ‘I’m buying Bertie’s drugs online because it is cheaper than from the vet,’ she says. Her two other rottweilers, luckily, have ‘lifetime cover’ with Axa.
‘My dogs are my life and I would do anything for them, but I just don’t know how much longer this can go on,’ she says. ‘What Halifax has done to me is devastating. Bertie’s future is uncertain.’
Both Sarah and Gail have complained to Halifax. Sarah fears that other owners like her could be forced to give away their dogs to pet rescue centres – or worse, have them put to sleep if they cannot afford their care.
Halifax told Financial Mail it would offer Sarah a significant ‘goodwill payment’, although the sum was not disclosed.
Financial Mail is aware of other customers being paid compensation by Halifax after they complained. However, others have been fobbed off and told to go to the Financial Ombudsman Service.
Officially, Lloyds Banking Group would not comment on the FSA’s intervention. It apologised for the upset caused to customers. The Financial Services Authority declined to comment, other than to say it was aware of the issue.