2006
2005
2004
2003
2002
| financial product | percentage |
|---|---|
| mortgage endowments | 61% |
| single-premium investment bonds | 4% |
| whole-of-life policies | 4% |
| personal pension plans | 3.5% |
| mortgage products | 3.5% |
| current accounts | 3% |
| buildings & contents insurance | 3% |
| motor insurance | 3% |
| credit cards | 2% |
| travel insurance | 1.5% |
| savings & deposit accounts | 1% |
| income protection insurance | 1% |
| loan protection insurance | 1% |
| other products | 8.5% |
In the spring of 2006 we began a wide-ranging review of the way in which we collect, categorise and record data about cases. This could have a minor impact on how we present some statistics in future annual reviews.
Given the very wide-ranging nature of the disputes we handle - from pet insurance to spread-betting - we have not included individual case studies in this annual review. The limited space in this publication means we could not give a fair and representative overview of all aspects of our work.
However, we include case studies in our regular newsletter, ombudsman news, which gives feedback on changing complaints trends, as well as commentary and briefing on our approach to different types of dispute.
We hope that firms, in particular, find ombudsman news a helpful source of reference - and that they will take its contents into account when considering how to handle complaints. ombudsman news is available under "publications" on this website. To join our mailing list for free copies - email publications@financial-ombudsman.org.uk
Below we highlight the issues behind the key areas of complaint during the year.
mortgage endowment complaints |
61% |
all other complaints |
39% |
During the year we received 69,149 new mortgage endowment complaints - a similar number to the previous year, when we handled 69,737 cases. This means that for the first time since 2003, when we received just 13,570 complaints about mortgage endowments, the substantial year-on-year increases in these complaints have halted, although the numbers have not yet started to decline. In fact, we expect - and are geared up for - similarly high levels of mortgage endowment complaints to continue throughout 2006/07.
In July 2005 the Financial Services Authority (FSA) published a document, mortgage endowments - progress report and next steps, which sets out the regulator’s intention to monitor firms’ performance in handing mortgage endowment complaints against three measures:
The FSA has subsequently been collecting data direct from firms and from us on the number of complaints we uphold in favour of consumers. As a result of the continued regulatory focus in this area - with the FSA stressing the importance of firms handling mortgage endowment complaints fairly and properly - we have seen a general improvement in the quality of complaints handling by the largest firms. We expect to see this improvement reflected in an increase in the proportion of cases where we decide the complaint has been properly investigated and declined by the firm involved. We continue to liaise closely with the FSA on these matters, as the quality of complaints handling by firms has a significant direct impact on our workload.
The volume of mortgage endowment complaints relating to the largest firms has showed a small decline over the year - with slightly more complaints now relating to medium-sized and smaller firms. In response to this trend, we are planning more events and communications targeted specifically towards these firms.
For example, we recently hosted a forum for 40 building societies, to explain our approach to mortgage endowment cases that relate to the period before the Financial Services Act 1986 came into force in April 1988. While some complaints about the sale of mortgage endowments in this period fall outside our jurisdiction - usually where advice was given by independent financial advisers (IFAs) - many of these cases are within our remit. This is because the sales were made by mortgage lenders or insurance companies who were members of our predecessor ombudsman schemes at that time.
The forum covered areas such as how we determine whether a firm gave advice; how we deal with cases when the firm’s file has been destroyed; and how we take into account the economic climate at the time mortgage endowment policies were sold. We also set out our approach to these issues in a technical briefing note that we subsequently published on our website. We plan similar events aimed at smaller firms throughout 2006.
All the large firms have now announced their intention to apply “time bars” to mortgage endowment complaints - as set out in the FSA’s complaints-handling rules (the “DISP” section of the FSA’s Handbook). During 2006 a significant number of consumers will receive personal notification of the final date by which they must have complained. The impact of time bars on complaint volumes is still uncertain.
Although we do not know how many consumers will be prompted into action by getting a letter telling them the final date to complain, the various "time-bar" rules are already starting to have an impact on the number of new mortgage endowment complaints that we are able to look at.
The effect of time-barring is something we had expected to see. We talked about this issue in our last annual review. During the year, around 15% of the mortgage endowment disputes we handled turned on whether the firm had applied an effective time bar - compared with 12% in the previous year. We explained our approach to dealing with these cases - including when we charge the firm a case fee - in issue 50 of our newsletter, ombudsman news.
We continue to see an increasing number of complaints where consumers have altered their mortgage arrangements in some way - and a modification to the standard redress calculation is therefore required if we uphold the complaint. In November 2005, in response to requests from firms, we published a summary of mortgage endowment cases involving unusual redress calculations. This technical briefing note is available in the publications section of our website.
single-premium investment bonds |
29% |
whole-of-life policies |
26% |
personal pension plans |
14% |
investment ISAs |
3.5% |
stockbroking |
3.5% |
income draw-down |
3% |
portfolio and fund management |
3% |
annuities |
2.5% |
FSAVCs |
2.5% |
“splits” and “zeros” |
2% |
other products |
11% |
The positive news in relation to investment complaints was the welcome 29% decrease in the number of cases we received during the year about “packaged” investment products, such as single-premium investment bonds and investment ISAs.
The recovery in the stock market has doubtless played some part in the reduction in the number of complaints in this area. That does not mean, of course, that we usually accept complaints about the performance of investments. We have specific powers to dismiss such complaints without considering their merits, where we believe the basis of the complaint is simply that the consumer is disappointed with the way in which their investment has turned out. However, poor investment returns can reveal underlying issues in a sale which might otherwise have been masked by good performance. So the inherent risk in a product might only become apparent when stock market losses are threatened or are actually suffered.
Risk and suitability for the individual consumer - at the time they bought the investment in question - are at the heart of most investment complaints we look at. We examine each complaint in the light of its own unique facts and circumstances, having regard to the law, regulations, rules, guidance etc in place at the time of the advice or sale complained about.
Our approach to certain types of complaints is now well established and recognised across the industry. This may also have contributed to the falling number of complaints about “packaged” investments. Having a better understanding of the way in which we are likely to view certain matters means that more firms are now able to settle complaints themselves, without the need for customers to refer the dispute to the ombudsman service.
complaints about single-premium investment bonds (including with-profits bonds) |
29% |
other investment-related complaints (apart from mortgage endowments) |
71% |
During the year there has been a particularly marked decrease in the number of complaints to us about “structured capital-at-risk” products (SCARPs) - sometimes called “precipice bonds”. Complaints relating to this type of bond are closely linked to performance issues. Many consumers do not appreciate the risks involved in their investment until they lose its capital value. Product design and the selling process have changed since these bonds first emerged on the market. The reduction in the number of complaints we are now seeing may therefore reflect a new focus on capital-guaranteed products - with riskier products directed only to those customers demonstrably willing to accept risk.
We have also seen fewer complaints about market value reductions (MVRs) in relation to with-profit bonds invested in open funds - with the generally improved performance of these funds, reflecting stock market improvements, leading to MVRs being reduced or removed.
However, consumers holding with-profit bonds invested in funds that are now closed to new customers may see MVRs continuing to be applied for some time to come. Given that the equity content of these closed funds is often only 10 to 15%, or less, these bonds are far more likely to be affected by changes in the yields on the underlying fixed income investments, rather than by the performance of the stock market. There are complaints that this is unfair, as it means the fund is not in a position to take advantage of a recovery in equities.
The issue of closed funds has been identified jointly by ourselves and the FSA as giving rise to wider implications - because the interests of an individual consumer may conflict generally with the interests of all other policyholders in that fund. Our role at the ombudsman service is to look at individual complaints, taking into account the particular circumstances of each case. It is for the FSA to take a more general overview of funds. If the FSA has no objection to a firm’s decisions about running a closed with-profits fund, our role in any individual case is to consider whether the firm’s investment approach to that fund is a legitimate exercise of its commercial judgement - for the good of its policyholders as a group. If it is, we will not take on the complaint for any further investigation.
complaints about whole-of-life policies |
26% |
other investment-related complaints (apart from mortgage endowments) |
74% |
The reduction in the number of complaints about whole-of-life policies during the year - an 8% annual decrease - was less than the 28% fall in the number of complaints about single-premium investment bonds and the 29% decrease in complaints about investment ISAs.
During the year we continued to receive complaints, in particular, about “reviewable” whole-of-life policies. A feature of these policies is that the product providers involved carry out reviews of policies in force, to see if the sum assured at the outset can be maintained in the future. The use of the regulator’s specified growth rates for assumed future performance - which are now lower than those specified some years ago - can have a significant bearing on whether the firm believes a policy’s "sum assured" will be sustainable.
Where investment performance is not as strong as expected, and assumed growth rates for the future are lower, whole-of-life policyholders may be asked for appreciable increases in premiums. Or they may be advised to reduce the sum assured provided by the policy. In these circumstances, policyholders frequently complain to us that the possibility of such a review was not mentioned - or that the implications and extent of the review were underplayed.
personal pension complaints |
26% |
other investment-related complaints (apart from mortgage endowments) |
74% |
The fall in the number of pension complaints we have seen in recent years - from 7,233 cases in 2002/03 to 4,214 cases in 2004/05 - continued this year, with a further 4% reduction in pension-related disputes. This decrease is partly due to the "tailing-off" of cases relating to the industry-wide Pensions Review, instigated by the regulator in the mid 1990s. Many of the Pensions Review complaints we received during the year were "out of time" under the FSA’s rules.
The majority of the pension complaints we deal with are about advice - the separate Pensions Ombudsman deals with most administration-related pension complaints. Where disputes turn on the quality of the advice given, professional pride is often at stake on the part of the adviser involved. And for consumers, the complaint may be a question of determining what pension income they will have when they retire. So these cases are often highly complex, with both parties having a very significant personal interest in the outcome.
mortgage products |
29% |
current accounts |
26% |
credit cards |
15% |
loans other than mortgages |
11% |
other banking services |
10% |
savings and deposit accounts |
9% |
complaints about mortgage products |
29% |
other banking-related complaints |
71% |
Complaints about mortgage products - where the dispute centres on the loan rather than on any repayment vehicle in place (such as a mortgage endowment) - have increased by a third during the year. This may reflect the fact that the range and complexity of mortgage products available in the market continues to grow. In particular, we have seen an increase in the number of disputes between consumers and lenders that relate specifically to the terms and conditions of mortgage products.
Where the mortgage product has been in place for a couple of years, the consumer has often forgotten what the original terms were. When the consumer tries to check this with the lender - perhaps by phoning the firm’s call centre, or by speaking to a branch employee who may be familiar only with the current product range - there is considerable scope for misunderstanding or wrong information. This can have serious implications where the consumer is trying to avoid being caught by an early repayment charge.
We have seen more complaints specifically about the fees charged for arranging or securing mortgage products - perhaps reflecting the fact that this is our first complete year of handling complaints against mortgage intermediaries.
At the other end of the mortgage lifecycle, we have also received a flurry of complaints about what are popularly called "mortgage exit fees" - the charge that the lender makes to cover the costs of the administrative work involved in repaying a mortgage.
credit card complaints |
15% |
other banking-related complaints |
85% |
The number of complaints to the ombudsman service about credit cards has increased by a third over the year - the same increase that we have seen generally in relation to our banking-related caseload.
Card fraud, in all its forms, has again been a significant source of dispute. Card issuers have reported that the introduction of cards with the “chip and PIN” security feature has contributed significantly to the reduction in the incidence of card fraud. However, we have not yet seen this reflected in a reduced number of complaints to us about alleged card fraud. As we reported last year, the complaints we see include a significant proportion of cases of alleged “first party fraud” - where the card issuer believes the customer is implicated in the fraud in some way.
Complaints about alleged card fraud have also risen significantly in relation to debit and charge cards attached to current accounts.
Enticing introductory offers by card issuers have led to complaints where the customer does not consider that the terms of the special deal were sufficiently clear. Although we have not normally upheld these complaints on the actual facts of each individual case, it is perhaps a good indicator that many consumers find these sorts of deals difficult to understand.
During the year there have been further developments on the question of whether section 75 of the Consumer Credit Act 1974 applies to credit transactions made abroad. This is the provision that holds suppliers and credit card providers jointly liable if a consumer has a valid claim for misrepresentation and/or breach of contract. The decision of the Court of Appeal in March 2006 overturned an earlier High Court decision which had found that transactions made abroad were not covered by this provision.
As we explained in last year’s annual review, we had expected card issuers to continue to apply the old voluntary policy on credit card transactions made abroad. So in practical terms, the decision by the Court of Appeal makes no difference in the vast majority of cases that we see.
complaints about loans other than mortgages |
11% |
other banking-related complaints |
89% |
Consistent with the increase generally in banking-related complaints, disputes to the ombudsman service about loans other than mortgages rose by a third during the year.
In last year’s annual review, we focused on the growing number of cases involving consumers who complained that the loans they took out were unaffordable from the outset. We have continued to see a growing number of these cases during the year - with similar issues also emerging in the significant numbers of complaints relating to overdraft lending and consolidation on current accounts. The complaints we receive in this area can be particularly complex and sensitive, as they frequently involve consumers who are vulnerable in some way (for example, those on long-term benefits).
We have also received complaints about interest rate differentiation - where the firm sets the interest rate for the loan on the basis of the customer’s individual risk profile, rather than offering one set rate to all customers across the board. In the absence of any evidence of maladministration by the firm - for example, the firm entering the applicant's details wrongly in its system, resulting in a mistake in the rate offered - we will not normally investigate a firm's commercial decision about the rate on which it is prepared to lend to a customer.
complaints about savings and deposit accounts |
9% |
other banking-related complaints |
91% |
In general we have seen a quieter year in terms of complaints involving savings and deposit accounts. The number of complaints in this area rose by only 7%, compared with increases of a third in the other types of banking dispute.
We continue to see complaints about the interest earned on savings accounts, particularly where the account is subject to complicated or restrictive notice requirements if loss of interest is to be avoided.
We have also continued to receive complaints about “guaranteed capital bonds” - as described in our annual review last year. These are not technically defined as investment products, as there is a guarantee that the invested capital will be returned in full at the end of the bond’s term, even though the interest rate depends of the movement of a specified investment index. Consumers who do not distinguish these deposit-based products from regulated investment products are often surprised that the regulatory requirements - such as the requirement on firms to carry out a "fact find" - do not apply to guaranteed capital bonds.
motor |
24% |
buildings |
14% |
travel |
12.5% |
loan protection |
9% |
contents |
8.5% |
income protection |
8% |
critical illness |
5.5% |
extended warranty |
4% |
commercial |
3.5% |
legal expenses |
3% |
private medical |
3% |
pet |
1.5% |
personal accident |
1% |
other |
2.5% |
motor insurance complaints |
24% |
other general insurance complaints |
76% |
Complaints to the ombudsman service about motor insurance rose by 31% during the year. This overall increase results from rises in all types of dispute involving motor claims. It also partly reflects the fact that this was the first complete year that insurance intermediaries were covered by the ombudsman service, having come under our jurisdiction on a statutory basis in January 2005. More than a third of complaints against the new insurance intermediaries and brokers related to motor claims.
We will continue to work with insurers and intermediaries to see if there are other particular factors responsible for the increase in motor insurance disputes. For example, we know there are some concerns that the growth of lower-priced motor policies is accompanied by the application of more stringent standards when claims are submitted. On the other hand, the willingness of insurers to assume responsibility for repairs after an accident means that a significant proportion of the complaints we now see relate to disputes about the standard of these repairs.
Another significant element of our work that is continuing to increase relates to complaints from policyholders about the way in which their insurer has handled motor claims from third parties. Policyholders can be dissatisfied with the effect that insurers’ actions in this area may have on their no-claims bonus and on the recovery of their uninsured loss - and they may also feel, rightly or wrongly, that they were inadequately involved in this aspect of the claims process.
complaints about buildings insurance |
14% |
complaints about contents insurance |
9% |
other general insurance complaints |
77% |
The number of building insurance complaints has increased by 20% over the year, while disputes about contents insurance have risen by 7%. This reflects, in part, the fact that insurance intermediaries came under our jurisdiction on a statutory basis in January 2005. A significant number of the complaints we received about insurance brokers and intermediaries related to household insurance.
The increase also reflects, in part, a continuing rise in the number of disputes involving complex and high-value claims under buildings policies. During the year over a quarter of the complaints we received about buildings insurance related to the standard of repair work carried out following claims under this type of policy. We continue to see a very wide range of practice in the way in which insurers handle complex buildings insurance claims. On the one hand, some policyholders have unreasonable expectations of insurers in terms of both the speed and the quality of the repairs that they are entitled to. On the other hand, the systems operated by some insurers prove inadequate when faced with complex or unusual individual circumstances.
travel insurance complaints |
12.5% |
other general insurance complaints |
87.5% |
Disputes arising out of travel insurance claims have increased by 17% over the year - and are now more than double the number we received in 2001/02. This may reflect the fact that the market for travel insurance continues to expand - for example, with further growth in the popularity of annual travel policies and policies automatically linked to other financial services, such as premium bank accounts and credit cards.
The policy terms for travel insurance remain complicated, and the sales process is frequently limited - given the low value of the transactions involved. As a result, while there is considerable competition on the pricing of travel insurance, there is also widespread misunderstanding on the part of consumers about the scope of the cover they have and the eligibility criteria that apply. We also see evidence of unsophisticated claims-handling by some firms and their sub-contractors.
