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"working with the ombudsman"

by Tony Boorman, principal ombudsman and decisions director

speech at the British Insurance Brokers' annual conference Manchester, 7 April 2005

Chairman, ladies and gentlemen - good afternoon. My thanks for the opportunity to address your conference today. The purpose of my remarks this afternoon is to discuss the affect that the regulation of insurance intermediation is having on the ombudsman service - and more importantly, to say a little about how working with the ombudsman may impact on insurance brokers.

It is perhaps worth starting by putting this discussion in context. An ombudsman service for the insurance industry itself is, of course, no new thing. Over 20 years ago, a small group of insurers got together to found what became the Insurance Ombudsman Bureau (IOB) - one of the forerunners of the present Financial Ombudsman Service. The IOB was based on the principles of a fair and reasonable resolution of customer complaints by an independent person. It was free to the consumer, and whilst the ombudsman's decision was binding on the firm (up to £100,000), the consumer who remained dissatisfied retained the option to take the matter to the courts if they wished.

Those principles remain today in the Financial Ombudsman Service. It continues to provide an impartial and informal service for the resolution of customer complaints that the financial firm and its customer have been unable to resolve. It still settles issues on the basis of what is fair and reasonable. But, of course, the Financial Ombudsman Service is not just about insurance. We handle disputes about a wide range of financial services including banking, general and life insurance, and investment advice. Whether, as a customer, you are buying your pet insurance or your spread betting service, the ombudsman is there to provide confidence that - if a problem does emerge - someone will be there to provide impartial resolution of disputes.

As you know, in recent years we have seen a significant increase in our work. Case volumes have grown substantially, not least because of the large number of complaints we receive about endowment mortgages. In the year just over, we received over 100,000 formal complaints - two thirds of which were about endowments. By contrast, complaints about general insurance and protection account for around one in seven of our complaints.

Earlier this year, after months of careful preparation, the Financial Ombudsman Service welcomed insurance intermediaries into our compulsory jurisdiction for the first time. Has this changed our world?

Clearly these are very early days but the current answer is both yes and no.

Yes - because - including mortgage intermediaries - we now have over 17,500 new firms within our jurisdiction, plus over 33,000 new authorised representatives (ARs). These firms comprise the widest possible range of businesses including, of course, insurance brokers both large and small, specialist and general, commercial and personal lines. But including ARs, you may be interested to learn that insurance day also brought into our jurisdiction:

  • over 750 car dealers;
  • a significant number of double glazing and conservatory installers;
  • nearly 900 veterinary practices; and
  • at least one gunsmith.

Authorised representatives also include schools, after-school clubs and parent teacher associations, kennels, catteries and over 400 caravan parks.

No - so far this hasn't greatly changed our world, because (as we expected) we have yet to see many complaints against insurance intermediaries. And those that have been notified to us are in the most part being sorted out by the firms themselves, without our direct involvement.

I sincerely hope that this will continue. At the ombudsman service we are committed to working closely with firms, so that as many complaints as possible are resolved as quickly as possible. This reduces the number of cases that are referred formally to the ombudsman service - with obvious benefits for everyone in terms of costs and savings in staff and management time - and in preserving good customer relations.

Customers themselves want a prompt and clear response to their complaint - even if that may simply be an explanation by the firm as to why its actions are reasonable.

But the changes that have been made are not just about you listening to issues raised by your customers. We have also been listening to firms. I know from talking to intermediaries that some people have concerns about the new arrangements. But in my experience, many of these concerns are misplaced and based on a misunderstanding of our approach. So, at this early stage, let me try to put correct some potential misunderstandings.

First, we take seriously the principle that complainants are your customers. We do not rush to take over cases. To be frank, we currently have more than enough work from other sectors to be getting on with! But in any event, our approach provides you with the opportunity to resolve matters.

The so called "8-week timetable" for complaints gives rise to some confusion. I should first of all note that compliance with the timescale for complaint handling is a regulatory issue - not one enforced by the ombudsman service, but a matter for the Financial Services Authority (FSA). If your customer is satisfied with the progress you are making with their complaint, we will not become involved. Indeed, we will only take on a case if the customer remains dissatisfied and you have either:

  • issued your final decision on their complaint; or
  • you have been unable to respond within eight weeks and the customer wants us to become involved at that stage.

But not all problems that customers contact us about give rise to formal complaints. Customers are not insurance experts, and sometimes the terminology of the industry and the processes it adopts lead to understandable customer confusion. We can provide explanation and impartial reassurance. In other cases, we can direct customers to the firm that is handling their complaint. We normally write to you to tell you your customer has been in touch, to explain the customer's basic complaint and to invite you to deal with your customer direct.

What all this means is that for every five customers that contact us with enquiries, we now need to take on formally only one case.

Second, we expect case volumes about intermediaries to be modest. The scope about what can readily be complained about in relation to intermediaries is, in practice, more limited than may at first be appreciated. At present, almost all the insurance cases we see are about claims that have been declined. In most cases, we will continue to look to the insurer to resolve cases about insurance claims, even if the customer initially refers to the intermediary. Experience from existing intermediary firms covered by the ombudsman service - including banks - suggests that disputes about administration are relatively infrequent.

Similarly, we do not normally consider complaints about premium increases or the availability or withdrawal of cover. "Advice" does, however, give rise to problems, albeit usually in the context of a disputed claim. It may be that we will see more disputes about alleged poor advice by intermediaries. Only time will tell. We are not complacent about the work that may need to be done. But my personal expectation is that this will not amount to a significant volume of cases. Our formal plan and budget forecasts a total of just 5,000 cases for insurance and mortgage intermediaries combined for the next 12 months.

Third, we are a private and informal service. That means that your dispute with your customer remains a private matter. Unlike the courts, we do not publish the names of parties to disputes - nor do we report all the cases that we deal with. We can discuss cases with you informally and in private. Most of our cases are resolved by agreement. Our objective is for both parties to the dispute to be satisfied at the end of the process.

What does this mean in practice? Let us assume that we are considering your complaint in one of our specialist insurance teams, and one of our adjudicators has concluded that you have acted reasonably. That adjudicator will probably discuss the case informally with the customer and explain why they feel the complaint is not justified. The same applies if the adjudicator feels that you might reasonably be required to do more to satisfy the customer - the first step will typically be an informal discussion about the case with you. You will have ample opportunity to put your points and arguments before any final decision is made. Most cases are resolved in this informal way - only in one case in twelve does the ombudsman formally decide the case.

Fourth, we place an emphasis on working constructively with the industry. We want to help firms understand our approach, so that they can avoid unnecessary referrals of complaints to the ombudsman service. We offer free subscriptions to our regular publication, ombudsman news, which contains case studies and lots of information about how we operate (please email us at publications@financial-ombudsman.org.uk to go on our mailing list). We arrange regular training sessions and conferences for firms. Coming up soon are two events aimed solely at intermediaries - in London on 12 May 2005 and in Leeds on 30 June 2005.

Our website also contains lots of helpful material for businesses that provide financial services. And firms are always welcome to call our technical advice desk on 020 7964 1400 (or email technical.advice@financial-ombudsman.org.uk) for informal guidance on our process - or to chat through any new complaints they may have received.

At an industry level, we have established our Insurance Liaison Group, with membership from insurers and brokers, in order that we can remain in contact with industry developments and discuss with firms developments at the ombudsman service. I am particularly pleased that your Association has joined the group, to add an authoritative voice of brokers to the group's discussions.

Discussions with industry groups do make a real difference. Last year, following extensive consultation with industry representatives, we made an important change to our charging arrangements. As you know, we are required to collect our costs from the industry. We do so by a mixture of an annual levy and a case fee levied on all formal complaints made to the ombudsman service.

We know that our case fees caused concerns for some members, particularly smaller intermediary firms. Accordingly, we have adjusted our fee arrangements so that the first two cases received by us in a year are free - only the third case incurs our normal case fee of £360 (£450 for commercial cases). That change has been widely welcomed and is to be continued in 2005/06. In practice, by number, most firms covered by the ombudsman service have no complaint raised against them. Most of our cases come from the top twenty financial groups. Our new case fee arrangements mean that the overwhelming majority of firms will pay no case fees at all. And this year we have set a standard levy for all insurance (and mortgage) intermediaries of just £50.

This is not to say that we will always agree with firms on complaints. We will not. Typically, we ask firms to change their approach to a complaint in around a third of the cases referred to us. And the introduction of regulatory requirements and the extension of our jurisdiction to cover intermediaries will inevitably raise issues of significance to brokers.

There will, of course, be occasions when you may feel we have misunderstood the situation and the significance of the issue. Let me make one plea in those circumstances. Get in touch. Speak to us and discover what we really meant by our decision. And if that applies to those directly involved in a dispute, it applies more so to those on the sidelines. Most of the disputes we handle - particularly in the case of insurance - turn very particularly on the specific features of the individual case. Summaries and press reports, in my experience, often fail to capture the true sense of the case. There is a particular risk that reported cases overstate the intended effect of the decision we have reached.

More generally, we have also made new arrangements to deal with cases that truly do have "wider implications" for the industry or its customers. In some instances, it may be more appropriate for the FSA to become involved. In some, we may need industry wider input via the relevant industry liaison group.

In conclusion, I hope I have portrayed to you an organisation that takes its responsibilities seriously. An organisation that speaks directly to firms and importantly one that listens too.

Of course, for all involved, the proof will be in the pudding - so I welcome feedback on your actual experience of your involvement with us. As the independent ombudsman service, our objective is to resolve disputes promptly and fairly - using our impartial role to bring finality to disputes. By doing so, we aim to underpin consumer confidence in your industry and hence assist customers purchase the financial products that they need.

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