mortgage endowment complaints
mortgage endowment complaints = 36%
other investment-related complaints = 64%
Over the year, disputes involving mortgage endowment policies represented
the largest number of complaints we received about a single issue
or product 22% of all new cases and 36% of investment-related
The delay by insurers in issuing their second round of re-projection
letters that tell customers whether their policies
are on course to repay their mortgages meant that the increase
we had been expecting in mortgage endowment complaints started later
in the year than we had forecast. So for the first year since the
Financial Ombudsman Service was formed, we saw an overall annual
decline in the number of mortgage endowment complaints.
However, in the last quarter of the year from Christmas
2002 the volume of complaints about mortgage endowments started
to increase significantly, with the number of new cases rising to
800 a week. This appears to reflect a similarly dramatic increase
in the number of mortgage endowment complaints that firms themselves
started to receive from late 2002.
The general decline in stock market performance has reduced the
expected maturity values of policies, and more investors are now
facing a shortfall than when the first set of re-projection letters
were issued. We expect a significant increase in mortgage endowment
complaints next year.
As firms should now have procedures in place enabling them to consider
complaints and to offer redress in accordance with the regulatory
guidance, we encourage consumers with potential complaints to await
their firms response before asking the ombudsman to intervene.
Where cases can be resolved by firms themselves, this benefits consumers
allowing them to switch to an equivalent capital repayment
mortgage at the earliest possible opportunity.
Early in 2003, the FSA amended the rules so that consumers can
have a slightly longer period of time in which to bring a complaint
about a mortgage endowment policy to us. Before this period of time
expires, consumers will have been put on notice that
they should consider their position and they should have
received at least one further reminder, as well as a factsheet from
the regulator, telling them that it is time to decide what to do.
personal pension complaints
personal pension complaints = 19%
other investment-related complaints = 81%
The FSAs Pension Review was targeted for completion by 30
June 2002 but several thousand reviews had still to be carried
out by that date. As expected, the end of the review led to increased
levels of complaint. During the year, we received 7,233 complaints
about personal pensions an increase of 23% on the previous
year (during which there had already been a 75% annual increase).
The major issue complained about continues to involve advice given
to policyholders to leave an occupational scheme, or not to join
one, and to invest instead in a personal pension policy. Falling
stock markets have reduced the value of pension funds and led to
lower annuity rates. So as consumers approach retirement, their
concerns may increase as they learn that they might not get the
pension income they had anticipated. We cannot consider complaints
that are purely about disappointing investment performance. But
we may be able to look at cases where consumers are unhappy with
the advice they received.
'splits' complaints = 6%
other investment-related complaints = 94%
During the year, we received 2,233 new complaints about split capital
investment trusts and zero dividend preference shares splits
and zeros. We had received only a few complaints involving
splits before this year and they reached their
peak during the summer of 2002. Early in 2002 we began work with
the FSA on what was clearly developing as a major new area of complaint.
We have received complaints about firms who provide these investments
and about firms that have sold them. Because many of the complaints
fall into similar categories, we are considering them by looking
at groups of complaints with similar features. This will enable
us to examine lead cases for each category of complaint,
with a view to applying the outcome once established
to other complaints in the same category. This approach should help
us to complete our consideration of all splits-related
complaints as quickly as possible.
We have come to preliminary findings on some of these lead
cases and have sent our initial views to the parties in question.
We are now in further discussion with the parties involved. As part
of the process, we must, of course, always give both sides to a
dispute the opportunity to raise and respond to new
comments and arguments, before we reach the final outcome.
Meanwhile we also continue to make decisions on cases that do not
directly involve lead case issues and which are
unlikely to set precedents or have wider implications for other
splits complaints. We decide these complaints on the
basis of the individual facts and merits of each case.
We are keeping in regular touch with all investors with splits
complaints, even where we have not yet reached the stage of being
able to write to them individually about their case.
In January 2003 we provided the Treasury Select Committee with
information about our handling of these complaints. This was followed
in early April 2003 with a joint statement to the committee by the
FSA and the Financial Ombudsman Service, setting out how we are
liaising closely on splits-related work.
complaints about mortgage loans (including
dual variable- rates)
other banking-related complaints = 37.5%
complaints about mortgage loans = 62.5%
During the year 62.5% of the banking-related complaints we received
were complaints about mortgage loans of which 70% involved
dual variable-rate mortgages. Some mortgage lenders moved from having
a single variable mortgage interest rate to having two. Many borrowers
who had taken out their mortgages before the change challenged their
lenders contention that they were linked to the higher rate,
rather than to the lower one.
In three lead cases, involving lenders A, B and C,
we decided that the particular borrowers mortgage contracts
entitled them to be linked to the lower of the rates. Lender A decided
to compensate its borrowers who were in a similar position, whether
or not they had complained. Lenders B and C decided to compensate
their borrowers who were in a similar position but only if
they had complained.
During the year, we received many additional cases about lender
C. Some were from borrowers who challenged the amount of compensation
they had received. Others were from borrowers who had been refused
compensation, because their circumstances differed materially from
the lead case. To cover the differing circumstances, we decided
a further five lead cases. These went in favour of lender C.
We also received significant numbers of such cases about lenders
D and E. The lead case about lender D went in favour of the customer.
There were two lead cases about lender E, covering different circumstances.
One went in favour of the customer and one in favour of the lender.
Lenders D and E decided to compensate their borrowers who were in
a similar position to the winners in the lead cases, but only if
they had complained.
We resolved a large number of follow-on cases about
lenders C, D and E together with a handful of cases about
other lenders. Only a few cases remain where there are special
issues to resolve. There is more information about some of the lead
cases and their outcomes on our website. With the agreement
of the lenders concerned, this includes copies of the full decisions
(though we have removed the borrowers names to preserve their
The remaining third of complaints about mortgage loans that we
received during the year covered a variety of issues. As in previous
years, the most common issue was early repayment charges on fixed-rate
and discount-rate mortgages. Other issues included under-funding
where the payment that the lender told the borrower to make
was set too low and interest-only mortgages where an endowment
or pension policy intended to repay the capital was never set up
or had lapsed.
complaints about about other loans
complaints about other loans = 6%
other banking-related complaints = 94%
With interest rates remaining low, we continue to receive a significant
number of complaints about fixed-rate business loans. Typically,
the lender borrows the funds in the money market and has to pay
compensation if it breaks the deal and interest rates have fallen.
So the loan agreement requires the borrower to pay an equivalent
early repayment charge to the lender. If interest rates do fall,
the borrower may want to get out of the fixed rate and may
dispute the early repayment charge.
Because the charge depends on the level of market interest rates,
the loan agreement cannot say how much it will be. Instead, it says
how it will be worked out. This has the advantage for the borrower
that the charge is linked to the cost, if any, to the lender. It
has the disadvantage that the explanation will be complex and the
amount unknown. We have to consider whether the charge, as an onerous
term, was sufficiently brought to the borrowers attention.
In some cases, we decide that it was not.
Lenders should take into account that many businesses are small,
with little financial expertise and no understanding of the money
market. The best agreements draw attention to the early repayment
charge, explain its operation clearly, warn that the charge may
be substantial and advise borrowers to get legal advice first. The
worst agreements hide the charge away, contain explanations that
are opaque (or even misleading), have no warning and say nothing
about borrowers getting their own
credit cards complaints
credit card complaints = 6%
other banking-related complaints = 94%
A significant number of complaints about credit cards relate to
section 75 of the Consumer Credit Act 1974 under which, in
certain circumstances, the credit card issuer is equally liable
for any misrepresentation or breach of contract by the supplier
of the goods/services paid for with the credit card. So, many of
these cases turn on what was done by the supplier, rather than the
credit card issuer.
Particular difficulties arise with transactions abroad often
time-share purchases. There is a long-standing debate about whether
section 75 applies to transactions abroad. Successive governments
have not clarified the legislation. And courts have not yet decided
the issue either although court proceedings, involving the
Office of Fair Trading and two credit card issuers, are now in prospect.
Meanwhile most credit card issuers will refund the amount paid
by credit card (though, in some cases, only after considerable pressure).
We require the other issuers to follow this as good industry practice.
But most credit card issuers refuse to cover any loss that exceeds
the amount paid by credit card (for example, where the price was
paid partly by credit card and partly by cheque). During the year,
three credit card issuers gave the Office of Fair Trading undertakings
that they would compensate these losses in future.
complaints about savings and deposit accounts
complaints about savings and deposit accounts = 5%
other banking-related complaints = 95%
Almost all the complaints that we received during the year in relation
to savings/deposit accounts were about the interest rate paid
and were usually complaints that the rate had been downgraded or
was otherwise unfair. This was a key issue in the review of the
Banking Code, which took place during the year. The Code is written
by the industry but, for the first time, an independent reviewer
was brought in to consult and make recommendations. The process
worked well and the new Code, effective from 1 March 2003, contains
In particular, the new Banking Code contains provisions about accounts
that are downgraded by 0.5% or more (whether in one step or a series
of steps) by comparison with the Bank of England base rate. Customers
will now be entitled to personal notification of such a change and
an opportunity to move their money, with any notice periods and
penalties being waived. Unfortunately, a few firms side-stepped
this provision, by reducing their rates shortly before it came into
effect showing that not all the leopards in the financial
jungle have changed their spots.
In previous years, we received many complaints that it was unfair
for firms to pay lower rates of interest on their TESSAs (Tax Exempt
Special Savings Accounts) than on their ISAs (Individual Savings
Accounts). Broadly, we resolved these complaints according to whether
the contractual terms of the ISA were less onerous (or not) than
those of the TESSA and whether the firm had reminded the
customer of the right to transfer to another TESSA provider.
One firm that had lost a case like this asked for the
ombudsmans decision to be referred to the High Court under
the judicial review process. The firm said that the ombudsmans
decision was wrong in law and irrational but that, if the
decision was upheld, the firm would compensate even those of its
TESSA customers who had not complained. The case was heard in September
The High Courts decision gives useful guidance on the interpretation
and application of industry codes of practice. Even if people might
reasonably come to different conclusions about a codes meaning,
it can have only one true meaning to be decided, if necessary,
by the Court. But the ombudsman is not restricted by the code in
deciding what is fair in the circumstances of a particular case.
The High Court upheld the ombudsmans decision about the TESSA.
It said that the ombudsman could not stretch the principles
of the Banking Code to cover a situation that was not contemplated
when the Banking Code was written. But the Court concluded that
the ombudsmans decision was rational and reasonable on grounds
motor insurance complaints
motor insurance complaints = 24.5%
other general insurance complaints = 75.5%
Motor insurance complaints increased by 47% last year. A significant
cause of complaint was the keys in cars exclusion. Many
motor insurance policies now exclude thefts where the driver has
left the car unlocked with the keys in the ignition (or on the seat).
For many customers this comes as an unpleasant surprise. In some
cases, the theft is more akin to hijacking. In other cases, the
customer seems to have moved well away from the car and is
no longer able to keep it under observation or be in any position
to deter a theft. We set out our general approach to these cases
in ombudsman news (January and
April 2001 issues), to help firms minimise the number of complaints.
But in these cases much depends on the precise sequence of events
and the overall circumstances of the loss.
The other major area of complaint about motor insurance policies
relates to repairs. When the insurer decides to settle a claim by
arranging for repairs (rather than by making a cash settlement),
the insurer becomes responsible for the quality of those repairs.
These arrangements are not always clear cut. For example, the insurer
may have arranged for the car to be taken to a particular garage.
On the other hand, the insurer may just have chosen a repairer from
a number of quotations obtained by the customer. We try to assess
whether the insurer has, in practice, had the main say in the repair
arrangements. If this is the case, we can then become involved in
difficult judgements about whether repairs are adequate.
complaints about building and contents
complaints about building and contents insurance = 24%
other general insurance complaints = 75.5%
Complaints about building and contents insurance account for about
a quarter of the disputes we deal with involving general insurance
products. As with motor insurance complaints, many cases relate
to the quality of repairs and raise similar issues.
Complaints involving fraud or alleged fraud also continue to be
a significant feature of our caseload. In these cases, the insurer
argues that it has sufficient evidence of fraud to turn down the
claim. If this is true, we have no hesitation in upholding the insurers
position. In some cases, however, the insurer has little more than
its instinct to rely on and has not been able to present
any evidence that the claim is fraudulent. On some occasions, a
policyholder perhaps pressed by an insurer to provide evidence
of ownership of goods will provide documents that are forged.
Clearly, this will affect our view about the credibility of the
policyholders account of events. But if the evidence suggests
that the policyholder did in fact own the disputed goods
as described in their claim, we generally take the view that the
fact that the documents were forged is not in itself sufficient
to warrant declining the claim.
A major preoccupation for insurers and many householders has been
the availability of flood damage cover for homes. The Association
of British Insurers (ABI) has produced a statement setting out the
circumstances in which an insurer will continue to provide cover.
This provides important safeguards for customers, while plans for
flood defences are being put into place. We have made it clear that
we would consider complaints from any customer who considered an
insurer had not complied with the ABI statement.
medical-related insurance complaints
medical-related insurance complaints = 16.5%
other general insurance complaints = 83.5%
Complaints relating to permanent health insurance, critical illness
cover and private medical expenses insurance form a significant
and sensitive part of our insurance caseload. Most disputes in these
areas require careful consideration of medical evidence for
example, to assess whether a customer is permanently and totally
disabled. During the year we set out how we assess such cases
especially where there is conflicting medical evidence. We noted
that we were likely to give evidence from suitably qualified independent
consultants greater weight than evidence from other sources, such
as functional capacity evaluation reports (see
the January 2003 issue of ombudsman news for further details).
A significant number of the medical-related complaints we deal
with continue to involve disputes about non-disclosure.
If a customer has not disclosed an illness or treatment when applying
for insurance, the insurer may be justified in rejecting a claim
should one arise. The insurance industry through the
ABI has been working to improve the quality of application
forms. This is helpful in ensuring that clear questions are asked.
We have contributed to this work and pointed out the type of questions
that, in our experience, cause particular problems for example,
where the firm expects specific details but does not make this clear.
Another issue that arises in medical-related complaints involving
non-disclosure is the requirement for the customer to
disclose any medical conditions that occur after the customer
has applied for insurance but before the policy actually
starts. There can be a considerable period of time between applying
for insurance and the policy coming into force for example,
where the insurer has to make further enquiries, or where the start
date of the policy is linked to a mortgage that the customer is
taking out. In our experience, customers are not always aware of
the need to disclose changes in their circumstances during this
period and we have upheld some complaints where we have concluded
that the insurer did not do enough to make this requirement clear.
In the case of medical expenses insurance, we continue to deal
with complaints that focus on the distinction between acute and
chronic conditions. With conditions like heart disease or cancer,
an insurer may conclude that an illness that started as acute (for
which cover is available) becomes chronic at some point after
earlier treatment(s) have been tried but were not successful. Chronic
conditions are not covered under medical expenses policies and are
typically defined by reference to terms such as where treatment
is not to cure the condition but to relieve symptoms. So an
insurers decision that a condition has become chronic not
only means that cover is withdrawn at a time when the policyholder
is particularly vulnerable it also implies a prognosis that
the patient and their medical advisers may not themselves l have
reached. We have discussed with insurers how the wording of this
provision and the handling of these cases can be improved,
to minimise both distress for policyholders and the likelihood of
travel insurance complaints
travel insurance complaints = 11%
other general insurance complaints = 89%
Travel insurance continues to represent a significant proportion
of the general insurance complaints we deal with. Of particular
significance is the handling of medical emergencies while abroad
especially in the USA and other parts of the world where
health treatment is expensive. Extended hospital stays and treatment
can give rise to bills amounting to tens of thousands of pounds.
Six figure sums are not unheard of. If travellers need to make a
claim, they will find they are not normally covered if their illness
is excluded as a pre-existing condition under the policy.
Under this exclusion which is common to almost all travel
insurance (and many other health based policies) cover is
not provided where an illness arises from a condition that the traveller
had previously (or was suffering from when they took out the insurance).
Our casework suggests that few travellers are made aware of the
pre-existing condition exclusion when they buy their
policy (often as part of their holiday package). And fewer still
recognise the potential implications of the exclusion. We often
need to reach difficult conclusions about whether an illness can
properly be described as having arisen from a previous condition.
For example, does a history of high blood pressure mean that a traveller
is not covered when they have a heart attack?
During the year, we drew attention to the importance of good record-keeping
by travel insurers when customers contact a firms medical
helpline to discuss their medical history prior to travel. Misunderstandings
at this stage can lead to major problems for both parties. So it
has been encouraging to note that, increasingly, firms are recording
calls to their medical helplines and confirming in writing any important
points such as alterations to cover or illnesses that would
not be covered (see
the July 2002 issue of ombudsman news for further details).
Another difficult area is the application of conditions that exclude
cover where claims arise from the use of alcohol. It is entirely
understandable that insurers should wish to avoid meeting claims
from travellers who have become so drunk that they are not in control
of their actions or make themselves ill. However, some insurers
apply this type of exclusion more widely, to cover any circumstance
where drink is involved. We take the view that such a wide application
of the policy is likely to be unreasonable.
other insurance disputes
Since 1 December 2001 when the new ombudsman service rules
came into force we have been handling a small number of commercial
insurance disputes. At present, the number of these disputes is
low as only events that took place since that date
can be referred to us. Given our limited experience in this area,
it is difficult to draw firm conclusions about the future nature
or volume of these disputes. However, early indications suggest
that most commercial insurance disputes are likely to relate to
buildings or motor policies held by small businesses.