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annual review 1 April 2003 to 31 March 2004 - key facts and figures

dealing with complaints at the initial stage

Our customer contact division provides a ‘single point of entry’ for all consumer enquiries - by phone, letter and email. During the year we handled 548,338 ‘front line’ enquiries - a 19% increase on the previous year (following a similar 19% increase the year before).

front-line enquiries from consumers
year ended
31 March
2004
year ended
31 March
2003
year ended
31 March
2002
phone enquiries
291,892
265,554
242,168
written enquiries
256,446
196,786
146,071
total
548,338
462,340
388,239
complaints referred on to our adjudicators
97,901
62,170
43,330

Where consumers contact us before raising their complaint directly with the firm, our customer contact division forwards the complaint to the firm and asks it to investigate the matter under its formal complaints procedure. We remind consumers that they can ask us to get involved directly if the firm has not been able to resolve their complaint usually within eight weeks.

Our customer contact division also gives general advice and guidance to consumers with enquiries. At this early stage, we try to nip straightforward problems in the bud - before they become full-blown disputes. For example, where a problem stems from a simple administrative error or misunderstanding between the customer and the firm, it might only take us a few phone calls to sort matters out.

An increasing number of consumers are getting the information they want directly from our website, rather than phoning or writing to us. Around 75,000 people are now visiting our website each month (a 25% annual increase) - and one in five people who log on to our website download our complaint form. A third of people who logged on to our website were first-time visitors.

Where further work is needed to resolve complaints, our customer contact division acts as the gateway to our specialist case-handling teams of adjudicators.

complaints referred on to our adjudicators

In the year ended 31 March 2004, our customer contact division referred 97,901 new cases to our adjudicators for more detailed dispute-resolution work - a 57% increase on the previous year.

new cases
by type of complaint
year ended
31 March
2004
year ended
31 March
2003
endowment policies linked to mortgages
51,917
13,570
other 'packaged' investment products
10,627
6,917
including complaints about
single-premium investment bonds (including 'precipice' bonds)
7,222
2,631
investment ISAs
1,537
1,581
PEPs
693
855
unit trusts
306
585
whole-of-life policies and non-mortgage-linked endowments
5,442
5,009
personal pension plans
5,303
7,233
including complaints about
personal pensions
3,470
4,907
guaranteed annuity contracts
280
223
income draw-down
212
189
purchased life annuities
168
223
small self-administered schemes and executive pension plans
144
162
stakeholder pensions
65
115
mortgage loans
3,220
9,438
including complaints about
dual variable-rate mortgages
146
6,535
motor insurance
2,727
2,372
current accounts

2,106

1,602
'splits' and 'zeros'
(in relation to investment trusts)
1,673
2,233
building insurance
1,549
1,285
travel insurance
1,453
1,088
credit cards
1,444
864
contents insurance
1,154
1,009
loans other than mortgages
1,116
933
including complaints about
unsecured loans
770
695
second charges
229
174
home income plans
117
64
other banking services
1,106
1,485
including complaints about
cheque clearance
368
239
money transfer
223
111
cash machines
128
114
safe custody
43
20
portfolio and fund management
921
1,044
permanent health insurance (PHI)
872
792
other types of general insurance
868
892
including complaints about
commercial policies
242
298
pet insurance
134
72
caravan insurance
78
52
savings and deposit accounts
806
748
including complaints about
cash ISAs
117
102
TESSAs
86
109
re-discovered passbooks and dormant accounts
61
76
loan protection insurance
802
803
free-standing additional voluntary contribution (FSAVC) schemes
704
887
critical illness insurance
582
492
stockbroking
432
503
extended warranty insurance
328
254
private medical insurance
294
302
legal expenses insurance
271
239
personal accident insurance
129
130
derivatives
55
46
including complaints about
spread-betting
37
35
options
14
10
total number of new cases
97,901
62,170

The chapter, overview of complaints trends, gives more details and background information about the main types of new cases we received during the year.

resolved cases

During the year, we resolved 76,704 cases - a 36% increase on the previous year. In dealing with each case, we use our extensive knowledge and experience of dispute resolution to decide the approach that we believe will be the most appropriate in the individual circumstances - and the most likely to settle the complaint quickly and fairly.

Generally, the approach we take will begin with an assessment of each case, to see whether we can resolve the complaint using ‘guided mediation’. Mediation is often quicker and more efficient than a formal investigation, which can sometimes be quite a drawn-out process. If we cannot resolve a complaint by mediation, we may need to take a more formal approach. This could mean issuing an adjudication - setting out our recommendations about whether the complaint should be upheld. In most cases, both sides accept these recommendations. But either side can ask instead for a review and final decision by an ombudsman.

The following chart shows the number of complaints we have resolved at the different stages of our complaints-handling process.

outcome of cases
resolved at the different stages of our dispute resolution process
year ended
31 March
2004
number of cases
year ended
31 March
2003
number of cases
resolved at the assessment stage (generally involving mediation and conciliation)
32,136 (43%)
22,312 (40%)

resolved after investigation by an adjudicator

38,263 (50%)
27,857 (49%)
In 3% of cases, the complaint was found to be outside our jurisdiction.
In 9% of cases, the customer withdrew their complaint.
In 26% of cases, the adjudicator found that the firm had not treated the customer's complaint fairly.
in 54% of cases, the adjudicator found that the firm had treated the customer's complaint fairly.
In 3% of cases, the adjudicator found that the firm had generally treated the customer's complaint fairly - but the firm still agreed a goodwill payment.
In 5% of cases, the adjudicator acknowledged that the firm had made an offer to the customer, but negotiated an improved settlement.

resolved by the final decision of an ombudsman

6,305 (8%)
6,290 (11%)
In 6% of cases, the complaint was found to be outside our jurisdiction.
In 1% of cases, the customer withdrew their complaint.
In 37% of cases, the ombudsman found that the firm had not treated the customer's complaint fairly.
in 47% of cases, the ombudsman found that the firm had treated the customer's complaint fairly.
In 2% of cases, the ombudsman found that the firm had generally treated the customer's complaint fairly - but the firm still agreed a goodwill payment.
In 7% of cases, the ombudsman acknowledged that the firm had made an offer to the customer, but negotiated an improved settlement.
total cases resolved
76,704
56,459 (100%)

our budget and productivity

The Financial Ombudsman Service is funded by an annual levy that is paid by firms covered by the service - and by a case fee that we charge firms for each individual complaint. Our budget is calculated on the basis of workload forecasts, which we consult on publicly in our plan & budget - published each year in January before the start of the new financial year.

In January 2003, when we first consulted on our budget for the financial year 2003/04, we estimated that the number of new complaints we would receive during the year would be only slightly higher than in the previous year. In fact, as explained in the chief ombudsman’s report, the volume of new complaints increased by 57% on the previous year - almost wholly because of the surge in complaints about mortgage endowments.

To keep up with the substantial increase in new complaints, we needed to increase our complaints-handling capacity to ensure we met our published timeliness targets and kept our work-in-progress at acceptable levels. The additional case fees from the increased number of cases we closed resulted in our income for 2003/04 rising to £41 million - £6.4 million more than we had forecast in the budget. This means that 68% of our funding during the year was raised through case fees and 32% through the levy - whereas our budget had assumed that income from case fees would raise 65% of our total funding and the levy, 35%.

Our total expenditure for the year was £36.5 million - £1.8 million more than our budget. This increase in costs resulted almost wholly from our needing to recruit additional staff during the year, to deal with the increased volume of new complaints. At the end of the financial year (March 2004) we had 725 employees, compared with the budget figure of 583.

Our unit cost for the year - the average cost of handling a complaint at the ombudsman service - was £473, compared with the budget estimate of £541 and £518 in the financial year 2002/03. Our unit cost has fallen by £257 since 1999/2000, when we brought the separate ombudsman and complaints-handling schemes together under one roof. This 35% decrease in costs over the last four years has resulted from improved efficiency in our case-handling procedures and from economies of scale - spreading our fixed costs over a greater number of cases. However, there will be fewer opportunities to benefit from economies of scale when the wave of mortgage endowment complaints eventually subsides and our work returns to handling a more balanced range of disputes. This means that our unit cost is likely to stabilise rather than continue to reduce.

Our rate of productivity (which we define as the average number of cases resolved weekly by each adjudicator) was slightly higher than the figure we had forecast in the budget. We had assumed a small fall in productivity - compared with the figure achieved in the financial year 2002/03. This was because we had not expected to be able to sustain the exceptional level of productivity which had resulted in the previous year from economies of scale, case-handling improvements and staff overtime.

number of cases resolved

2000 = 22,100
2001 = 28,400
2002 = 39,194
2003 = 56,459
2004 = 76,704

year ended 31 March

bar chart

average number of cases resolved weekly by each adjudicator

2000 = 3.1
2001 = 3.3
2002 = 3.75
2003 = 4.9
2004 = 4.9

year ended 31 March

bar chart

our unit cost

- is calculated by dividing our total costs (before financing charges and any bad debt provision) by the number of cases we complete.

2000 = £730
2001 = £753
2002 = £684
2003 = £518
2004 = £473

year ended 31 March

bar chart

However, because of the unexpectedly large number of mortgage endowment complaints - which are often less complex and quicker to resolve than certain other complaints - and as a result of many additional hours of overtime (for which our adjudicators are rewarded through our incentive scheme, rather than through direct extra pay), we were able to maintain the same rate of productivity as in the previous year.

Offering staff an incentive scheme as part of our reward and remuneration strategy - with performance awards where agreed targets are exceeded - has helped us to meet service delivery targets in the face of significant increases in workload. It has also helped maintain a level of productivity which we suggested in last year’s annual review might not be sustainable in the long term. Our incentive scheme costs around 7% of our staff-related costs - and provides a more targeted, measurable and cost-effective reward system than paying overtime.

our income and expenditure
(summary)
actual
year ended
31 March 2004
£ million
budget
year ended
31 March 2004
£ million
actual
year ended
31 March 2003
£ million
actual
year ended
31 March 2002
£ million
income
annual levy
13.1
11.9
14.7
0.0
case fees
27,4
22.7
21.1
3.5
former schemes’ service charges
0
0
0
23.8
other income
0.5
0
0.4
0.2
total income
41.0
34.6
36.2
27.5
expenditure
staff-related costs
26.6
24.4
20.5
18.6
other costs
6.8
6.5
6.6
6.1
financing charges
0.2
0.6
0.4
0.7
depreciation
2.9
3.2
2.5
1.8
total expenditure
36.5
34.7
30.0
27.2
exceptional item - write-off of establishment costs
0
0
2.9
0
surplus/(deficit)
4.5
(0.1)
3.3
0.3

The surplus for the year of £4.5 million has been added to our reserves. Our policy on the amount of financial reserves we keep - agreed after consultation with the financial services industry - is not to exceed 5% of our expected annual expenditure. We will return any amount over this to firms, by reducing the amount of the annual levy in the following year. This means that in the financial year 2005/06 we expect to reduce the annual levy by approximately £4 million, after allowing for the planned deficit in the year 2004/05.

detailed financial statements

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