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a fair and open approach

speech by Tony Boorman, principal ombudsman, at the ABI's complaints-management seminar

London, 7 November 2008

My thanks for the invitation to speak today at the Association of British Insurers (ABI) seminar on complaints-handling. I want to talk about how the ombudsman service and financial businesses can work together to tackle what seems likely to be a challenging year for all of us at the sharp-end of customer service.

As you will know, the remit of the ombudsman now covers the broad swath of financial services - from spread betting to pet insurance, from high street loans to pensions. The customers of over 100,000 financial services businesses now have the protection of the Financial Ombudsman Service should a dispute arise. We receive each year around 800,000 initial enquiries and 120,000 formal complaints about financial businesses - and our website is visited by over 5,000 people each day.

But these figures can get in the way of what our service is really all about:

  • Resolving the complaints and concerns of individual consumers.
  • Helping businesses and their customers by bringing about the final resolution of a dispute.
  • Allowing good relations between that business and its customer to be re-established.

Our approach is informal. And deliberately so. This is, after all, what the Financial Services and Markets Act requires of us. We use the official powers granted to us sparingly. My ombudsman team is directly involved in formally deciding only around one in ten of the complaints the ombudsman service settles. Most cases are resolved informally - by mutual agreement, not the application of our legal powers.

So how do we approach this task? Our starting point is the facts of each individual case. Our objective: the fair and reasonable resolution of the dispute. We don't expect consumers to be experts. This is not about whether consumers can construct carefully ordered points of law. Consumers are dissatisfied by events and feel the financial business has treated them unfairly. We find out whether or not that is true. In other words, have the actions of the business caused customer detriment?

We approach complaints with an open mind. Listening to the two sides. Getting to grips with the issues. We know that the precise circumstances of the case will matter. The smallest differences of fact can give rise to dramatically different outcomes.

Then we test our answers on the parties. Have we uncovered all the relevant facts? Are our outcomes ones the two sides can agree with, or do they have responses to the points we have raised? Only after that interaction - only after both sides have had the opportunity to put their points to us - will we make a decision.

While it is important to emphasise the significance of individual facts in individual cases, given the volume of complaints we deal with, we inevitably see similar issues arise - as of course do you. We seek to tackle these common issues consistently, in the light of the varied circumstances we observe. And so our practice in handling cases develops.

As you know, last year we asked Lord Hunt to carry out a review of the issues relating to the accessibility and transparency of our service. We already publish a great deal of material about how we approach cases and decide issues. So is a "mini-moto" a "powered vehicle" or a children's toy? And what are the factors that the ombudsman takes into account in deciding disputes about "savings endowments"?

The answers are in issue 73 of ombudsman news which we published a few days ago. Readers can find out how we approached these issues and more.

All told, we have now published over 800 case studies in ombudsman news, our regular newsletter "for people interested in financial complaints - and how to prevent or settle them." We've also published dozens of articles on our practice in handling cases. This is something I know is widely welcomed both by financial businesses and consumer representatives. It is something we will continue to do.

Lord Hunt recognised these efforts in his report. But he asked us to do even more, to help consumers and businesses resolve matters without the need for disputes to be referred to the ombudsman. He said in his report:

I do not, however, see how the ombudsman can become more transparent without significantly more decisions being published, and those decisions being published in full, rather than in summary form.

And we are responding. In addition to ombudsman news, I hope you have seen our technical notes and guides on major complaint issues - much of which we pull together around common sources of complaint, such as mortgage endowments and payment protection insurance (PPI).

But we plan to go further still. We plan to produce a digest of our practice, illustrating our approach with examples of the cases that we decide. Our recent policy statement on our strategic approach to transparency, which we published in July 2008, sets out our plans in more detail.

Suffice to say, setting out such a digest is not a trivial task. It will take time to develop and produce. But you should expect to see more and more emerging publicly about our cases and practice.

I hope this will encourage further engagement and debate on the decisions the ombudsmen are making. Opening out to a wider audience the legal and practical issues that our decisions need to tackle will not just be informative for interested parties. It will, I believe, also be genuinely helpful in the development of our practice as ombudsmen.

Let me give you a brief example. As part of its recent work on insurance law reform, the Law Commission asked us whether it could review a couple of hundred of our decisions on issues relating to non-disclosure. We were pleased to assist it.

The Law Commission subsequently published its first consultation on insurance contract-law reform and included in its report a detailed assessment of those ombudsman decisions. Our practical experience of the issues in this area has clearly been of particular significance in developing the Law Commission's thinking.

So by publishing more of our work, I believe we will enable a wider and more informed discussion to take place - enabling a range of academic and other insights to be brought to bear on the issues we all need to tackle.

But let's be clear here. There is nothing unusual or unexpected about the ombudsman's approach. In deciding cases, we are required to reach a solution that is "fair and reasonable in all the circumstances of the case". This is not an arbitrary discretion. The framework of our "fair and reasonable" jurisdiction is clear. The law, regulation, industry codes and good practice. These are all issues that are, or at least ought to be, well known to financial businesses - although, of course, perhaps not generally to consumers.

Certainly, for complaints-handling staff in financial businesses the outcomes of our "fair and reasonable" jurisdiction should be neither unrecognised nor unfamiliar. So it still comes as a surprise and disappointment when I see cases where an insurer or other financial business appears to have paid no attention to our approach - either in its initial handling of a customer or subsequently in handling that customer's complaint.

Why, for example, do we still continue to receive - and uphold - such significant numbers of complaints from consumers in areas like car insurance? There is surely nothing new about fair car-valuations and decent repairs? And why do we still continue to receive - and uphold - complaints involving, say, matching three-piece suites, or using vouchers from high-street jewellers in settlement of claims for rare, antique jewellery? Or what about the handling of claims involving "close relatives" in travel policies - another area where we continue to see too many complaints?

And this point is not just one for general insurers. Surely, no investment adviser could have been in much doubt about the issues surrounding the sale of savings endowments to older customers with little, if any, need for life cover? Surely, you as complaints handlers cannot be saying that this came as a surprise to you when you read issue 73 of ombudsman news.

In this context, let me speak briefly about payment protection insurance (PPI). You will recall that I mentioned this at your seminar here last year. I noted last year that the issues raised by the PPI complaints that were being referred to us were "in essence simple to describe: was the customer in a position to make an informed choice about this purchase?"

I set out at this seminar last year some of the key issues that we would need to consider, and I noted 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 wondered, for example about "single-premium products with low cancellation rebates - especially in a loans environment with low persistency". I stressed that:

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".

You won't be at all surprised to hear me say today that this remains the position one year on. Only one thing has changed - and that is the volume of cases we have received about PPI. I do not find it credible for anyone to argue that the approach we adopt in these cases is either unexpected or unclear.

The fair resolution of complaints has seldom been more important for financial businesses and consumers than it is today. I hope that you as professional complaints handlers are able to ensure that your business understands the approach we adopt at the Financial Ombudsman Service. That you, too, consider what is fair and reasonable, taking account of the law, regulation, codes and good industry practice. And that you help your business and its customers avoid the need for unnecessary referrals of disputes to the ombudsman service.

For our part, we will continue to publish information about our approach - and of course, we will be ready to provide a service for you and your customers wherever complaints remain unresolved.

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