Homeserve shares slide on fears of mis-selling

The firm, which insures some three million people in the UK against burst pipes, broken down boilers and electrical problems, suspended its sales operation over the weekend after a review by accountancy firm Deloitte.

The review found cases where the sales processes did not meet required standards and Homeserve will now retrain nearly 500 call centre staff.

The FTSE 250 group, which saw shares fall 28 per cent to value the group at about £1.1 billion, gave no details on how many customers may have been affected by the problems, which are understood to relate to the scripts used by sales people to explain pricing and policy details.

Chief executive Richard Harpin said the firm will resume marketing once it is confident “the sales processes meet the standards that we and our customers expect”.

Inbound calls, where potential customers contact the company, are due to resume today but outward sales activity, or cold calls, will take longer to start again.

Homeserve said it will meet its market expectations for the year to March, but analysts warned a lack of sales this winter will hit results for the following year.

Henry Carver, an analyst at brokerage Peel Hunt, said the autumn/winter period to March is key for winning new custom and no sales growth in the UK during this period will hit profits in 2013.

He added there could be some reputational knock-on effect that could impact overseas growth, especially in the US.

In total the group has more than five million customers across its businesses, which also include divisions in the US, France and Spain.

The Financial Services Authority has been informed and is likely to investigate, which could mean a fine for Homeserve if it is found to have breached rules for selling of financial products. There is also the possibility of compensation for customers if it is found they have been mis-sold a policy.