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Homeserve customer numbers and profits drop

Home repair insurance business Homeserve has seen a sharp in fall in profits after it was hit by £46.7 million in costs from a mis-selling scandal.

The slump in profits to £24.4 million, from £66.5 million a year earlier, follows a fine of more than £30 million from the Financial Conduct Authority (FCA) for "serious, systemic and long-running failings" between 2005 and 2011.

Homeserve has overhauled its management team and systems since the matters came to light two years ago and said today that it had made good progress in stabilising the UK business.

Customer numbers reduced by 200,000 to 2.1 million in the year to March 31 but this was a smaller reduction than the company anticipated a year ago.

It is hopeful of maintaining its customer base at above two million this year as it expects to acquire new 300,000 customers with a retention rate of 82%.

Chief executive Richard Harpin said: "We have made good progress in stabilising the UK business by focusing on improving customer service, increasing retention and delivering effective marketing."

Shares rose 8% following the update.

Walsall-based Homeserve has 5.5 million customers in the UK, USA, France, Spain, Italy and Germany, with 62% based in overseas markets compared with 54% last year.

The UK business delivered adjusted operating profit of £53.4 million, against £78.3 million a year earlier. There are five million UK policies in force, with more than half being in the water sector.

The FCA's investigation covered the mis-selling of household emergency policies and poor handling of customer complaints by the company, whose products include boiler and central heating breakdown cover and insurance against blocked drains.

The regulator said Homeserve's pay structure incentivised sales staff to increase the volume of products sold, irrespective of the customer's need for the product.

As well as the financial penalty of £30.6 million, an additional £19 million was taken in today's results to cover a customer redress programme.

Cost associated with the exercise have been higher than expected but Homeserve said all customers have now been contacted and that its provision remains appropriate.

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