Customer service problems could cost Homeserve up to £35m

The firm, which insures three million people in the UK against burst pipes, broken down boilers and electrical problems, recently stopped making outbound sales calls and retrained staff amid fears it has mis-sold policies.

Although it is gradually resuming taking calls, it yesterday revealed that the issues will cost it £10m in restructuring costs and fees in the second half of its financial year, while it will pay a further £10m a year to reinvigorate its sales processes.

It estimates that customer numbers will cut by up to 5 per cent – equivalent to 150,000 in the UK – as a result of the reduced marketing activity, which will lead to a £15m drop in contract renewals income next year.

Shares fell 13 per cent after the hit from the customer services problems overshadowed a 10 per cent rise in underlying pre-tax profits to £23.5m in the six months to September 30. They have now lost more than half of their value since the problems emerged last month.

Homeserve has started the process of developing new sales scripts but said outbound calls will not be resumed until it is fully confident it can meet the required standards. It is also reviewing its direct marketing material, which is due to be sent out in the new year.

Homeserve has also started a review of all complaints it received last winter when the Arctic weather triggered three times the average call volumes, mainly from customers reporting broken boilers and frozen pipes. It has said it will get back in touch with any customers that were not dealt with correctly. Its US boss Jonathan King has returned to the UK to spearhead the clean-up.

Chief executive Richard Harpin said: “We were disappointed to have found evidence of a shortfall in our standards in our UK sales and marketing procedures.

“We are taking decisive action to address these issues to ensure that our practices meet the high standards that both we and our customers expect.” Homeserve said the customer service problems overshadowed a “solid” UK performance that has seen it carry out more than one million home repairs in the past year.

The group’s total revenues rose 25 per cent to £213.1m in the half year, helped by a 46 per cent rise in US policy sales.