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corporate plans and budgets » Plan & Budget 2002/03 - Complaint trends

‘it is difficult to predict the pattern of complaints’

new complaints

introduction

5.1 Our working assumption for 2002/03 is that the overall number of new complaints will be at a similar level to the current year. We have tested two additional scenarios, one assuming the number of new cases will be 10% above that for the current year 2001/02 and another assuming it will be 10% lower. A summary of the latest forecast and budget is as follows:

New complaints
2000/01 Actual
2001/02 Forecast
2002/03 Nil Growth
2002/03 Increasing Complaints
2002/03 Falling Complaints
Insurance
6,559
7,000
7,600
8,400
6,900
Banking and loans
6,153
6,500
7,000
7,750
6,300
Investment
18,635
24,500
22,900
25,350
20,800
Total
31,347
38,000
37,500
41,500
34,000

5.2 It is difficult to predict the pattern of complaints. The last few weeks of 2001 have seen a marginal slowdown in the number of complaints. Whether this is a temporary blip or a continuing trend is hard to judge at this stage. We summarise below the external and internal factors which may determine the pattern of complaints. We also summarise the current position on the Voluntary Jurisdiction.

5.3 A number of external factors can affect the level of complaints. These include: a) industry action Firms may be more proactive in dealing with complaints, resolving them successfully before the stage where they would otherwise be referred to the ombudsman. Both we and the FSA have been encouraging this approach. Our monthly publication, ombudsman news, sets out our general approach to particular types of cases and provides firms with useful guidelines. The FSA complaint-handling rules that came into force at N2 should improve industry standards.

b) mortgage endowments Firms’ actions in sending out re-projection letters will have a critical effect on the level of new complaints in 2002/03. At present, we are assuming some increase in complaints resulting from re-projections in the first quarter of 2002.

c) N2 We have always assumed that there will be some increase in complaints from the publicity surrounding N2. d) falling stock markets and investment returns This may well lead to an increasing number of complaints. In particular, it is likely that mortgage endowment re-projections will show larger shortfalls.

internal factors

5.4 There are also internal factors that will influence the level of cases.

5.5 new business process The staff in our customer contact division receive and screen complaints before they become ‘cases’ (and therefore chargeable) and are passed on to a case-handling division. We are training these staff to resolve relatively straightforward complaints at the earliest possible opportunity. This may help to reduce the future level of chargeable cases.

5.6 new eligibility rules The new rules widen the scope of eligible complaints in a number of respects. Many more firms come within our scope and new activities (insurance of small businesses, and securities and share dealing) come within an ombudsman scheme for the first time. This could have an upward impact on case numbers.

5.7 new rules definition of chargeable case The main impact of the new case-fee arrangements will only be felt from April 2002. Cases will become chargeable at a different (and - by comparison with some former schemes - earlier) point in the process. Our best estimate is that this will initially have an upward impact, possibly followed by a decrease as firms get used to the new arrangements. Some volatility is expected.

voluntary jurisdiction

5.8 We had expected to be extending the Voluntary Jurisdiction to new sectors and had envisaged that this would have a business and financial impact in the year 2002/03. However, in December 2001 HM Treasury announced major policy decisions that will affect our plans. It is clear that general insurance intermediaries and mortgage brokers will eventually fall within our Compulsory Jurisdiction. Whether they may be brought within the Voluntary Jurisdiction before then remains to be considered. We had expected mortgage lenders to join the Compulsory Jurisdiction in mid-2002 but it will now be delayed. However, our Voluntary Jurisdiction is open to such lenders and we will welcome those who wish to join.

a) consumer credit firms We intend to discuss with trade associations and regulators the possibility of consumer credit members joining the Voluntary Jurisdiction.

b) insurers and banks from the European Economic Area (EEA) We have consulted on allowing EEA insurers and banks that sell into the UK consumer market to join the Voluntary Jurisdiction. We expect the immediate effect will be to allow five or six insurers, mainly based in Ireland, to continue to be covered by the ombudsman service.

consumer contact division

5.9 customer contact division (CCD) We expect the number of consumers contacting us by telephone or letter to rise by 11% this year. However, we expect the level of contact to remain at a similar level next year.

Actual 2000/01
Forecast 2001/02
Budget 2002/03
Calls to dedicated telephone lines in our customer contact division
221,000
250,000
250,000
New written complaints
67,000
70,000
70,000

5.10 We have made a considerable investment in skills training for our consumer consultants and are beginning to see the benefits of this expenditure. Our intention is to resolve as many complaints as possible in our customer contact division, to avoid them becoming chargeable cases. We are at present developing a range of key indicators to measure our performance in this area.

insurance division

5.11 insurance division - analysis of new complaints

5.12 The increase in complaints has been reasonably stable over the last few years.

2000/01 Actual
2001/02 Forecast
2002/03 Budget
% Increase 200102 over 2000/01

% Increase 2002/03 over 2001/02

Motor
1,989
1,800
1,900
(10)
6
Buildings/contents
1,795
1,850
1,950
3
5
Loan protection
711
750
850
5
13
Travel
778
800
900
3
13
Other
1,286
1,800
2,000
40
11
Total
6,559
7,000
7,600
7
8

5.13 The expected reduction in the number of complaints involving motor insurance reflects our intention to resolve more straightforward issues, such as motor valuation, at the initial contact stage. We expect a slight increase in loan protection complaints to reflect the probable increase in claims during an economic slow down. Travel claims have been rising for some time and the terrorist attacks in the USA are likely to exacerbate the position.

5.14 The increase in other complaints this year reflects mainly the inclusion, for the first time, of critical illness and permanent health insurance complaints - these will account for about 500 cases this year. In addition, a growth in the number of people taking out medical expenses policies has driven an increase in the number of complaints about these policies. In 2002/03 we expect to see the first commercial disputes coming forward for resolution. The impact of this is uncertain at present but we have assumed that we will deal with no more than 400 cases on commercial disputes in the first year.

banking and loans division

5.15 banking & loans division - analysis of new complaints

2000/01 Actual
2001/02 Forecast
2002/03 Budget
% Increase 2001/02 over 2000/01
% Increase 2002/03 over 2001/02
Current accounts
793
1,050
1,040
32
(1)
Deposit/Savings accounts
1,679
1,450
1,600
(14)
10
ISAs
0
30
40
-
33
Loans secured on land
2,499
2,950
2,900
18
(2)
Other loans
664
620
870
(7)
40
Other
518
400
550
(23)
38
Total
6,153
6,500
7,000
6
8

5.16 The increase in the number of new complaints has begun to level off compared with previous years.

5.17 The current year has so far seen a reduction in the number of complaints about TESSAs, but this has been offset by complaints about dual variable- rate mortgages and downgraded accounts. Individual Savings Accounts (ISAs) have yet to be the source of a significant number of complaints and the ISA complaints we do receive tend to involve investment-based ISAs, so they are dealt with in our investment division.

5.18 It is possible that the new time limits relating to the transfer of bank accounts will give rise to additional complaints.

5.19 Credit unions will join the Financial Ombudsman Service from 1 July 2002, which may produce additional complaints relating to deposit/ savings accounts. We are forecasting that the number of mortgage complaints will remain fairly stable.

5.20 Complaints about ‘other loans’ are likely to increase, particularly from small businesses, especially if there is a downturn in the UK economy.

investment division

5.21 investment division - analysis of new complaints

2000/01 Actual
2001/02 Forecast
2002/03 Budget
% Percentage 2001/02 over 2000/01
% Increase 2002/03 over 2001/02
Mortgage endowment
9,067
13,900
12,400
53
(11)
Endowment/whole life
3,363
2,400
2,400
(29)
0
Personal pensions
2,545
4,800
4,500
89
(7)
PEP/ISA
268
1,100
1,300
310
18
Other
3,392
2,300
2,300
(32)
0
Total
18,635
24,500
22,900
31
(7)

5.22 During this year we have felt the full impact of the increase in complaints relating to mortgage endowments which, at their peak, accounted for approximately 60% of all new complaints. These complaints now account for approximately 50% of all new complaints and we expect a further reduction in 2002/03, as most firms have implemented procedures to streamline their complaints-handling in accordance with the regulator’s guidance. However, as mentioned earlier, the new round of re-projection letters that firms will be issuing to policyholders this year is likely to result in further complaints to the ombudsman.

5.23 Following the House of Lords decision on the treatment of Equitable Life guaranteed annuity rate (GAR) pension policies, we have seen an increase in complaints from consumers with non-guaranteed policies from companies other than Equitable Life, which have also sold GAR policies.

5.24 We expect pension review complaints to continue at about the same level as in 2001/02 and they are included with all other personal pension complaints.

conclusion

5.25 Against this uncertain background, we have decided simply to assume the similar forecast figure as the current year. However, we have also assessed the impact of two alternative scenarios - firstly, a higher growth in new cases of 10%, and secondly, a reduction in new cases of 10%.