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Plan & Budget 2001 / 02 for the year ending 31 March 2002 - chapter four

complaint forecasts and productivity - "a sharp increase in activity"

1 There has been a sharp increase in activity both in the number of initial customer contacts we receive and in the number of actual cases these contacts turn into. Our initial forecast for 2000/01 of 260,000 initial customer contacts and 27,500 cases has grown to 300,000 and 31,700 respectively. This growth is expected to continue in the budget year 2001/02. A summary of the latest forecast is as follows.

Latest forecast
1999/00
Actual
2000/01
Estimate
2001/02
Forecast
Initial customer contacts
228,000
300,000
375,000
 
New cases
Insurance
7,100
6,400
7,200
Banking and loans
5,300
5,900
6,800
Investment
12,800
19,400
24,000
 
Total
25,200
31,700
38,000

2 It must be emphasised that forecasting cases is a difficult area, and research undertaken during the year indicates that there is no predictable pattern to growth in complaints. Increases are driven by the particular issues of the day. In the current year, complaints about Tessas and mortgage endowments have had a significant impact. In responses to this document we would appreciate views on case growth which we will take into account when we finalise the 2001/02 forecast in March 2001.

 

Reversing the rise in complaints?

3 The growth in the number of complaints is unwelcome both to us and to the industry. There are a number of factors that may give cause for hoping that the rise may slow down and eventually be reversed.

4 Action by the Financial Ombudsman Service In streamlining the handling of initial enquiries, our staff - instead of merely processing complaints - will be seeking any opportunity to resolve potential complaints, so that they do not turn into full scale disputes requiring ombudsman investigation. The full impact of our technical advice unit - helping practitioners and consumer advisers to resolve disputes themselves on the basis of past ombudsman policies - has also yet to be felt.

5 Action by the FSA The new complaints-handling rules made by the FSA will come into force at 'N2' and place emphasis on the quality, as well as the timeliness, of complaints-handling by firms. For the first time, these rules will provide a consistent framework for the standards of complaints-handling across the industry. It is also hoped that regulatory guidance by the FSA relating to endowment mortgage complaints, to be published in the spring, will have an impact on the number of complaints referred to the ombudsman service.

6 Industry initiatives The Association of British Insurers has recently launched two industry initiatives - its Claims Code (addressing the general insurance sector) and the Pensions, Protection and Investment Accreditation Board (addressing the life sector). Both include relevant standards on complaints-handling. In anticipation of 'N2', many other sector trade associations, including those representing banks and building societies, are planning action to assist their members in effective complaints-handling.

7 Present requirements However, in the short term the Financial Ombudsman Service will need to handle the current level of activity. This is analysed below by each of the four principal divisions. It is important to stress that these forecasts deal primarily with the 'compulsory' jurisdiction and do not include any additional workload which may form part of the 'voluntary' jurisdiction.

8 Phone and written contacts have grown by over 30% in the customer contact division (formerly the enquiries division).

1999/00
Actual
2000/01
Estimate
2001/02
Forecast
Phone contacts
183,000
236,000
280,000
Written contacts
45,000
64,000
95,000

In addition to the sharp increase in activity, it is also likely that the former separate ombudsman schemes had a higher rate of 'abandoned' calls than the Financial Ombudsman Service. The installation of modern call technology in our customer contact division has increased our capacity to deal with larger volumes of calls more effectively.

9 For the first nine months of the year the customer contact division has been able to handle the 30% increase in volume with existing staff, and still maintain its key performance benchmarks of answering 80% of calls within 20 seconds, with an 'abandoned' call rate of less than 5%. However, we now need to increase the number of staff from 77 to 90 to handle the growing volume of work.

10 As outlined in the previous chapter, a key element of the proposed business process is that the customer contact division should carry out a more pro-active initial screening of cases so that, wherever possible, we can resolve issues before they become chargeable cases.

 

Insurance division

11 The different types of general insurance complaints have been reasonably stable for a number of years.

Insurance division - analysis of new cases
1999/2000
Actual
2000/01
Estimate
2001/02
Budget
Percentage
2000/01
over 1999/2000
Increase
2001/02
over 2000/01
Motor
2,359
2,000
2,200
-15%
10%
Buildings/contents
2,033
1,780
2,000
-12%
12%
Loan protection
1,004
950
1,150
-5%
21%
Travel
763
720
850
-6%
18%
Other
993
950
1,000
-4%
5%
Total
7,152
6,400
7,200
-11%
12%

12 The overall total number of cases has, however, fluctuated against a generally upward trend. The present year (2000/01) is expected to see a significant decrease in the number of new cases received. We believe this is due to two main factors. First, the adjustments in 1998 to the IOB business process resulted in a marked increase in complaint volumes. As insurance companies have become more used to the new process, this increase has been reversed. Second, there was significant alteration to the IOB systems and processes during the first six months of the year 2000, which reduced the throughput of cases. For these reasons, the year 2000/01 may not represent a firm basis for comparison with subsequent years.

13 New cases for 2001/02 are forecast at 7,200 (a 12% increase on the forecast for 2000/01 - broadly the same as 1999/00).

14 We expect significant growth in loan protection cases (reflecting increasing concerns about these products). The number of complaints involving motor insurance is expected to increase at a slower pace, as more cases are resolved by firms. Complaints about building insurance are expected to increase, following the recent floods. Other growth areas may include medical expenses insurance (at present only about 3% of our caseload), travel, and warranty insurance. No other type of complaint is expected to represent more than 5% of overall caseload.

15 The forecast for 2001/02 does not include any complaints which would fall under the 'voluntary' jurisdiction. The forecast assumes that no significant number of commercial disputes are received in the year.

 

Banking and Loans division

16 The Banking Ombudsman Scheme and the Building Societies Ombudsman Scheme collected statistics on bases that differed from one another and from the basis used by the Financial Ombudsman Service. This means that the figures for 1999/2000 are necessarily estimated.

 

Banking and Loans division - analysis of new cases
 
1999/2000
Actual
2000/01
Estimate
2001/02
Budget
Percentage
2000/01
over 1999/2000
Increase
2001/02
over 2000/01
Mortgages
2,288
2,500
3,000
9%
21%
Other lending
416
530
680
28%
27%
Card services
301
230
360
-9%
52%
Savings accounts
684
1,300
890
91%
-32%
Current accounts
366
470
610
30%
29%
Other accounts
50
60
70
18%
15%
Payment systems
370
350
450
-4%
25%
Non customers
128
60
130
-54%
20%
Other services*
689
400
610
-40%
47%
Total
5,292
5,900
6,800
12%
15%

* "Other services" includes complaints about benefits payable to members when a building society becomes a bank.

 

17 Subject to this caveat, the estimated figures for 2000/2001 show an overall increase of 12%. The rate of increase has accelerated during the current year. So the budget figures for 2001/2002 assume an overall increase of 15%.

18 News stories critical of banks or building societies appear to create an influx of complaints relating to all issues, not just the subject covered by the actual stories. We are likely to feel the effect of publicity about (for example) the Banking Code and the provision of banking and finance for small and medium sized enterprises.

19 When the Financial Services and Markets Act 2000 comes into force at 'N2', consumers will have access to the ombudsman no later than eight weeks after they complained to the firm. Currently consumers have to wait until the firm's internal complaints procedure has been exhausted, before they can come to the ombudsman.

20 This is likely to cause a surge of work as firms' complaints departments clear their desks of complaints older than eight weeks. Additionally, the single Financial Ombudsman Service is likely to become better known.

21 In 2000/2001, the major area of growth relates to savings accounts. This is due to a surge of complaints about banks and building societies paying lower rates of interest on their TESSA accounts than on other savings accounts (typically ISAs). We expect to see a reduction in this type of complaint in 2001/2002.

22 Conversely, 2000/2001 has seen a fall in complaints from non customers and about 'other services'. This includes complaints about benefits due to members when a building society de-mutualises. In view of recent developments in the industry, we expect rises in both areas in 2001/2002.

23 We anticipate that mortgages will give rise to at least 44% of cases in 2001/2002. This takes into account the proportion of cases relating to mortgages in 2000/2001 before the surge in TESSA-related complaints, and any publicity relating to the forthcoming introduction of mortgage regulation.

Investment division

24 Mortgage endowment policies Complaints in this area are growing sharply. By the end of the year 2000, new cases were averaging 240 per week. The full impact of the proposed regulatory guidance on mortgage endowments on the number of complaints received by the ombudsmen cannot yet be quantified. However, at their present rate, this area will represent around 55% of complaints against PIA-regulated firms in 2001/02.

Investment division - analysis of new cases
 
1999/2000
Actual
2000/01
Estimate
2001/02
Budget
Percentage
2000/01
over 1999/2000

Increase
2001/02
over
2000/01

Mortgage endowment
3,135
9,300
12,800
197%
38%
Endowment/whole life
1,695
2,240
2,500
32%
12%
Personal pensions
3,656
3,400
3,500
-7%
3%
FSAVC
824
540
1,000
-34%
85%
Others
2,223
2,520
2,700
13%
7%
PIA Ombudsman Bureau total
11,533
18,000
22,500
56%
25%
 
IMRO complaints
433
470
500
9%
6%
SFA complaints
854
930
1,000
9%
7%
 
Total
12,820
19,400
24,000
51%
24%

 

25 Endowment and whole life policies The ombudsman service receives a flow of complaints questioning the suitability of longer-term contracts sold as savings plans. A number of companies have conducted reviews of such sales. We do not expect any marked increase in these complaints next year and they will represent around 10% of total complaints.

26 Personal pensions The Pension Review is now in its latter stages and a reduction in Pension Review complaints has led to a small decrease in the total number of personal pension cases over the previous two years. These now represent a smaller percentage of total cases (some 15%). We have been able to disband one of the specialist Pension Review teams and concentrate all Personal Pension cases in one larger team.

27 Free standing AVCs (FSAVCs) The review of some FSAVC sales ordered by the FSA has caused a lull in these complaints for a few months, while investors wait for their review to be completed and then decide whether to come back to us. We may see an increase - or the review may solve the problems. Our current perception is that such complaints will not represent more than 5% of our total.

28 Other complaints The smaller categories of complaint - such as complaints about administration and PHI claims - show only a small underlying increase and there are no indications that there will be a significant increase in the future.

29 Complaints against IMRO-regulated firms We are receiving new cases at an average rate of 39 per month, compared with 36 per month last year and 33 per month the year before. With the increased awareness among consumers of ombudsman schemes, we anticipate that this steady growth will continue.

30 Complaints against SFA-regulated firms Over the period from May 1999 to May 2000 the SFA Complaints Bureau saw a relatively large increase in the number of complaints. However the rate of increase has now stabilised.

 

Productivity and service level targets

31 We measure productivity and unit cost by cases closed, rather than simply by cases received. Despite the relocation to South Quay, productivity levels across the service as a whole - measured by the number of cases all divisions close - have remained at the level of the former schemes and are forecast to increase in the budget year 2001/02. A summary of estimated case closures and productivity levels is set out below.

 
1999/00
Actual
2000/01
Budget
2000/01
Estimate
2001/02
Forecast
Cases resolved
22,100
27,100
28,000
38,500
No of casehandlers
136
167
170
220
Productivity*
3.12
3.12
3.17
3.37

*cases closed per casehandler per week

32 We have responded to the increased complaint levels by stepping up recruitment and improving our business process and casework systems. Although the number of cases awaiting consideration by an adjudicator has risen, the new Financial Ombudsman Service aims to settle 70% of cases within six months. We aim to achieve this benchmark within six months of 'N2'.

 
1999/00
Actual
2000/01
Estimate
2001/02
Budget
Number of cases at year end
11,600
15,300
14,800
Number of case-handlers
136
170
220
Cases closed within 6 months*
65%
70%
Cases closed within 12 months*
90%
95%

*Estimates prior to information being available from the new case-handling system

33 By the time we consult next year on the budget for the year to 31 March 2003 - the first full year that we will operate under our own legal powers - we will have had the benefit of operating all schemes using a single case-handling system, and we will therefore have common data. At that time, it will be appropriate to set out more formal short term and long term service standards.

34 The overall picture, therefore, is one of a sharply increasing number of complaints, driven in particular by endowment mortgages, and a resulting increase in the number of cases awaiting consideration by a case-handler. This position is projected to recover in 2001/02, due to the impact of increased recruitment and the introduction of the new business process and case-handling system. This projected increase in the number of cases resolved will be a major factor in reducing unit cost - the subject of the next chapter of this document.