London, 9 November 2007
Thank you for the invitation to this seminar. It is pleasing to note by the attendance today that effective, fair complaint handling is an issue for many in the insurance industry. And let me also commend the work that the Association of British Insurers (ABI) has done – and reported on today – on its benchmarking study of industry complaints handling. There is much of value in that work for ABI members. Of course, benchmarking should encourage the best – and chasten the less successful to raise their game. It is something I hope that other sectors will wish to emulate.
I want to start with a few remarks about using information about complaints and responding to more active consumers, before concluding with a few observations on complaints about payment protection insurance.
As you will know, Lord Hunt has accepted our board's invitation to conduct an independent review of the Financial Ombudsman Service, focusing on the twin issues of the accessibility of our service, and how we should use and communicate the information we obtain from our work. He has recently published a short paper, inviting comment on the issues he is considering in his review. So this seminar is particularly timely in looking at the information available about the way in which complaints are handled.
I am struck by how there has been a marked change in attitudes over the past few years. Forward-looking businesses are now seeking out ways to help them understand how they are performing against their competitors in the way they handle complaints. And the best are thinking not just about improving their complaints handling for when things go wrong. They are also looking seriously at root causes to tackle the underlying issues. Clearly the Financial Services Authority's "treating customers fairly" initiative has been a positive driver here.
Our own information at the Financial Ombudsman Service will be of interest. At its simplest, the fact that we receive a large number of complaints about a particular financial business or product should be of concern to policy-makers in both businesses and regulators. That is even more the case, if the ombudsman also often upholds those cases – requiring significant change to the outcome that had been reached at the end of that business's own complaint handling process.
These are pointers that the FSA has increasingly been considering in its own assessments. But crucially, from a financial business's perspective too, understanding the actual and relative experience of customers who feel the need to complain seems to me to be a vital step for anyone who aspires to treat customers fairly.
At the Financial Ombudsman Service we have two systems currently for communicating data about complaints performance to individual businesses:
As Lord Hunt notes in his paper [PDF version opens in new window], this data and the resulting discussions are private. They are at present not disclosed to customers or their representatives. But should such data remain solely a matter of private discourse? What makes financial services businesses inherently different from utilities or hospitals where such data is routinely published?
You may consider that such information can only be understood in the wider context of the number of complaints the business itself handles and resolves – and I have some sympathy with that. Certainly, the number and outcomes of the disputes that the ombudsman service handles is but a small part of the overall picture of customer complaints, let alone customer experience. So there are questions about how any publication would be implemented.
The wider "openness agenda" raises important questions about whether, more generally, the Financial Ombudsman Service should publish more about its work. Currently we use our regular publication ombudsman news to publicise our approach to typical cases – in the form of anonymised case studies.
And our online resource for businesses answers in some detail over 100 frequently-asked questions about our work – from " why should I pay a case fee if a customer complains about me to the ombudsman and loses?" to "can a business submit information in confidence to the ombudsman service?".
But should we, for example, also publish ombudsman decisions in their entirety, so that all interested parties could see our work in practice? And if we did, what impact would that have?
These are matters for Lord Hunt's review. We look forward to hearing his conclusions, informed as they will be by our stakeholders' contributions. If you have not already done so, I would urge you to respond to his call for views and feedback.
You may have seen the speech that Clive Briault (the managing director of retail markets at the FSA) gave earlier this week at the FSA's "treating customers fairly" conference – in which he touched on the impact of consumer activism.
Of course, consumer organisations like the National Consumer Council (NCC) and Which?, together with the consumer media – from newspaper "agony aunts" to programmes like BBC Watchdog – have always given customers the confidence to complain when things go wrong. And this has naturally had an impact on our workloads.
More recently the poor handling by some firms of mortgage endowment complaints helped ensure that claims management companies flourished in this sector.
But in the past year or so, a more significant shift in consumer empowerment has been taking place. Online communities of consumers exploring their rights and getting advice from each other.
So viral campaigns can develop rapidly from genuine consumer frustrations. That means that any weaknesses in your firm's customer service – any legally suspect provisions and any simple unfairness in the way you treat your customers – can be highlighted rapidly and information about that disseminated widely.
What the National Consumer Council describes as the "stupid company" might see these developments as the hostile efforts of a handful of campaigners and activists. But the users of these self-help sites are simply ordinary consumers who are concerned (and sometimes enraged) by what has happened to them.
Finding that others can say "that happened to me too – it can't be right and I've complained" builds confidence that complaining is an appropriate way to proceed. Seeing that it has had successful results for others only reinforces that confidence. It strengthens the accessibility of the complaints process and helps guard against those firms that seek to brush-off justified complaints.
In this way customer views can be expressed, often forcibly and certainly effectively, to businesses.
But businesses can benefit too. This is, in effect, free market research – giving powerful new insights into the views and concerns of your customers. Certainly, as Clive Briault points out, it is a significant additional driver to encourage businesses to treat their customers fairly.
So it's a development that should be welcomed. Yes, there are concerns. The highly confrontational tone of some of these websites is not to my taste. I worry too about a focus on immediate returns and a cut-and-dried assessment of issues. And, of course, there is a tendency to focus only on a small number of "campaignable" issues – whereas customer experience and complaints go much wider.
But a business that treats its customers fairly has nothing to fear from active customers and complaints. Indeed, a business that treats customers fairly and provides good service surely has everything to gain.
This is having a permanent impact on the complaints environment in which we work. From the ombudsman's perspective, it means that we have to continue to provide for sudden surges of complaints – something, of course, we have become well practised at over the past few years. So our service needs to retain the infrastructure and flexibility to respond to the demands that you and your customers need us to meet.
It also means that there is a new focus on our work and the decisions we make. For example, the decision we made in the summer about the closure of bank accounts solely on the basis of customers complaining about their charges, was published on a consumer website within hours. Whether desirable or not, it seems to me inevitable that more and more of our decisions become public property – albeit in a rather ad hoc manner.
But our core values are not affected. We will continue to provide a service to all those with unresolved complaints. A service that levels the playing field for all customers, not just the active and informed.
Before I close, I thought I should say a little about an issue that is receiving a great deal of comment at present – payment protection insurance (PPI). There is nothing very new in the concerns about PPI and the way it is sold. These are issues that have troubled consumer groups, and increasingly regulators, for many years. The sector can hardly say it has not had good notice of the issues.
Despite this, the latest FSA report – "the sale of payment protection insurance: thematic update", September 2007 [PDF opens in new window] – highlighted the simple fact that most firms it studied were failing to meet their obligations under FSA rules. It reported widespread failures to "ensure that customers are given the basic information necessary to make an informed choice about this product". And in the light of these continued failings, it announced that it was taking formal action against several firms and would seek to increase the fines it issued on cases of selling abuse.
But until recently it seemed that these issues generated few, if any, complaints. That is not to say that the ombudsman service received no complaints about PPI – on the contrary, it has always been a significant part of our general insurance workload. But the complaints we received were typically about declined claims.
What is new is a focus on sales issues, rather than simply claims-based disputes. PPI complaints have, in recent months, been the largest single contributor to our general insurance workload, with complaints running at nearly three times the level of last year. To assist consumers and businesses, we have produced a consumer factsheet [PDF opens in new window] which summarises some of the key issues involved in complaints about payment protection insurance.
The issues raised by these complaints are in essence simple to describe: was the customer in a position to make an informed choice about this purchase? There is, however, normally no straightforward answer to this question – much will depend on the individual circumstances of the case. But there is nothing particularly novel or unusual about the issues raised by these cases. Instead, we will need to consider issues such as:
I have heard some in the industry argue that these cases are not genuine –that they should be set aside, dismissed as in some sense inappropriate, as simply attempts to jump on a bandwagon driven by consumer websites and media campaigns.
I disagree. Of course, we take care to get to the bottom of the true circumstances of the case. We do not rely on some claims handler's standard version of events or a template letter – just as we do not rely on a financial business that says it must have met its obligations simply because its staff sales-manual says that it should do so. We will ask the hard questions and listen critically to the answers we receive from both parties.
Of greater significance is the fact that these disputes have too often, on investigation, unearthed sales practices that would at best be described as questionable – and product designs that seem shaped more for the convenience of the industry parties involved than the interests of the customer.
I wonder, for example, about single-premium products with low cancellation rebates – especially in a loans environment with low persistency. Too often in the cases we see, these and other significant product features have not been explained in a fair and balanced way to the consumer. And I must say I have serious doubts about those policies where the reasonably achievable maximum benefit is little more than the premium. That does not sound to me in keeping with "utmost good faith".
No doubt there are issues here for regulators and others to take forward. The ombudsman's job will be to resolve the individual disputes that are referred to us – and to provide feedback to our stakeholders about the issues we see.
I hope that this has been of some assistance to those present, as you consider how your business should develop its complaints-handling work.