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corporate plans and budgets » Plan & Budget 2003/04 - performance in the year 2002/03

introduction

2.1 This will be the first full year in which the Financial Ombudsman Service has operated under its own powers. As well as managing a continued increase in the volume of new complaints, we have completed the process of merging the ‘old’ schemes into one integrated service.

key activities of the year so far

2.2 The key activities of the year so far have been as follows:

2.3 achievement of targets. The year has been characterised by a very large increase in the volume of new complaints. Despite this, we expect to meet our productivity and timeliness targets and to deliver a unit cost considerably below that forecast.

2.4 restructuring of the business. Previously, our casework was carried out in three divisions, based on the former banking, insurance and investment ombudsmen schemes, each with their own rules. We had always recognised that this structure could not be a permanent one, since it did not give us the flexibility to transfer staff from one division to another to meet sudden and unexpected surges in complaints.

Having implemented our unified casework system and business process, we have now been able to reorganise these divisions into new teams, each dealing with a variety of cases covering all three areas of complaint. In the short term, we expect this reorganisation to lead to some interruption to our normal levels of productivity, as case-handlers develop their expertise in the full range of products.

2.5 credit unions. Approximately 800 credit unions joined the Financial Ombudsman Service on 1 July 2002. Trade bodies representing many of these credit unions invited us to their conferences to run seminars and familiarise delegates with the complaints-handling process.

2.6 consultation on opening the voluntary jurisdiction. Mortgage and general insurance intermediaries are likely to be subject to our compulsory jurisdiction in October 2004, when they become regulated by the FSA. After discussion with the Mortgage Code Compliance Board (MCCB) and the General Insurance Standards Council (GISC), we decided there was merit in anticipating this by opening our scheme early for those mortgage and insurance intermediaries who wished to join. We therefore published a consultation document in May 2002 on opening the voluntary jurisdiction. In the light of responses to this consultation, we will be accepting new members into our voluntary jurisdiction from 1 April 2003. However, we do not expect the number of customer complaints that will reach us as a result to be significant in relation to our total budget.

2.7 working together conferences. We have undertaken a series of working together conferences at venues around the country. The conferences were aimed at financial services practitioners and involved presentations from ombudsmen and adjudicators, coupled with workshops and discussion of case studies. The conferences were well attended and feedback from the firms that took part suggests that participants found them very valuable.

2.8 measuring quality. We have introduced routine quality monitoring within our business process and we have started sending questionnaires to customers after we have dealt with their cases, in order to measure their views on aspects of our service. Given that our base consists of customers who are already dissatisfied, and that we do not uphold the majority of the complaints referred to us, we accept that satisfaction rates are unlikely to be high. However, the results of our monitoring will provide very useful indicators. We intend to publish a summary of our findings in our annual review 2002/03. In addition, we plan to consult soon on how best we might measure firms’ satisfaction with our service.

2.9 new complaints. By the end of December 2002 we had received 43,000 new complaints. We expect this figure to rise to 55,000 by the end of March 2003. This is 27% above last year’s figure of 43,300 and 47% above the budget forecast of 37,500. This high level of cases reflects some of the major areas of financial complaints that have arisen during the year, including complaints about dual variable mortgage rates, mortgage endowments, Equitable Life and split capital investment trusts.

Some of the publicity surrounding these issues has stimulated an increase in the number of complaints reaching us, both about these issues and also about other - unrelated - financial matters.

We have based our forecast for new complaints on the following assumptions:

  • complaints about dual variable mortgage rates will be significantly lower during the last half of the year 2002/03;
  • complaints about Equitable Life and split capital investment trusts will continue to arrive at the same rate;
  • mortgage endowment complaints will increase in the final four months to March 2003, following firms’ issuing their second round of mortgage endowment ‘re-projection letters’ to policyholders, towards the end of 2002.

2.10 case closures. Our budget, set in March 2002, assumed 40,000 case closures this year. By the end of December 2002 we had closed 40,398 cases, and we now expect to close 54,500 cases by the end of March 2003. This volume of case closures is 39% higher than last year and 36% higher than the budget forecast.

2.11 In May 2002 it became apparent that the volume of cases, especially in the banking area, was well in excess of what we had expected. We recruited 35 new case-handlers to help keep our timeliness targets and work-in-progress to acceptable levels. Later in the year we introduced a further incentive scheme for our existing case-handlers. Coupled with the recruitment of an additional 18 case-handlers by the end of January 2003, this will bring our work-in-progress back to its level at the beginning of the year.

2.12 productivity and timeliness. We calculate productivity as the average number of cases that each case-handler closes each week. Our productivity for the first nine months was 4.6 cases per case-handler, exceeding our budget target of 4.1 cases. We expect this to increase to 4.7 by the year-end. This figure reflects:

  • the special project to reduce the work-in-progress;
  • a continuing improvement in the business process, especially the earlier stages of our complaints-handling process; and
  • the effect of closing significant numbers of dual variable rate mortgage cases through our ‘lead case’ procedure.

The productivity figure of 4.7 does not, however, represent a sustainable position in the long term. This is because we are only achieving this rate of productivity by offering case-handlers incentives to work extra hours in order to conclude additional cases well over their normal targets. We began the year in April 2002 with 22 weeks of work in hand. This was six weeks more than anticipated in the budget, due to higher than expected numbers of new complaints in 2001/02. By December 2002, our work-in-progress had improved to 21 weeks and we expect it to fall to 19 weeks by the year-end.

Our targets for timeliness are to close 75% of cases within six months and 100% of cases within 12 months. At present, we have closed 76% of cases within six months and 96% within 12 months, with any cases exceeding this time limit being reported to the board. We have achieved these results despite a large increase in cases.

2.13 expenditure and unit cost. The budget for expenses (before financing charges) was £27.5m, based on our closing 40,000 cases, giving a unit cost of £688. The total expenditure for 2002/03 (before financing charges) is expected to exceed the budget by £2.2m, mainly due to the additional staff and staff-related costs. However, with case closures now expected to be 54,500, this gives a unit cost of £544 for the year. This is £144 (or 21%) less than originally anticipated.

summary

2.14

12 months actual 2000/01
12 months actual 2001/02
9 months actual 2002/03
12 months forecast 2002/03
opening work-in-progress
12,083
14,781
18,917
18,917
new cases
31,350
43,330
43,294
55,000
case closures
28,652
39,194
40,398
54,500
closing work-in-progress
14,781
18,917
21,813
19,417
work in hand (weeks)
22
22
21
19
unit cost
753
684
547
544
productivity
3.3
3.8
4.6
4.7
cases closed in six months
65%
73%
76%
78%

conclusion

2.15 As in previous years, we have tried to balance the importance that consumers attach to our providing a fast complaints-resolution service with the need to provide a quality service at a reasonable cost to the industry.