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plan & budget 2005/06 for the year ending 31 March 2006 - performance in the year 2004/05

introduction

2.1 At the beginning of 2004, we successfully carried out a major reorganisation, creating a single unit to handle all mortgage complaints. Previously, the handling of these complaints had been spread across a number of smaller units. This ambitious reorganisation entailed simultaneous alterations to our management structure, business process and case-handling system.

2.2 At the same time, we set out to recruit additional staff, mainly to help maintain service levels for cases about matters other than mortgage endowments. It was important, as far as possible, to prevent the ever-increasing volume of mortgage endowment complaints from affecting consumers with other complaints.

2.3 It was evident that our handling of mortgage endowment cases would be affected until we had completed the recruitment and training of the new staff required to deal with the surge of these complaints. But at least we knew that any delay would not have the same impact as it might have done for other types of complaint. This is because, in most cases of mortgage endowment mis-selling, consumers have not yet suffered a loss in real terms. Their actual loss will not materialise until their mortgage reaches the end of its term - usually some years ahead.

It is important that we set consumers’ expectations appropriately, so that they understand our approach. Each month we monitor consumers’ views about our service. Overall satisfaction is as high for consumers who have mortgage endowment complaints with the ombudsman service as it is for consumers with complaints about other matters - a satisfaction rate of around 80%.

2.4 As far as workload volume was concerned, in our plan & budget, published in January 2004, we assumed that we would receive 83,000 new complaints and close 88,000 cases, in itself a considerable challenge. But firms and industry bodies warned us that the new complaint forecast was unrealistic. So we revised our plan in March 2004, forecasting 103,000 new complaints and - with the aim of at least keeping pace - a similar number of closures.

2.5 Our customer contact division is our initial point of contact for consumers. A significant part of its work involves seeking to resolve consumers’ problems at an early stage, so that these problems do not become “full-blown” disputes that we have to deal with formally as “chargeable” cases. While not an “official” part of the ombudsman service’s case-handling process, this area of our customer contact division’s work nevertheless plays a key part in our “complaints-prevention” strategy and we are dedicating more resources to developing this area of work. Increasingly during 2004, our customer contact division has been able to resolve many mortgage endowment complaints at this early stage, in instances where a firm has already made an offer but the consumer remains doubtful about accepting it. In the first nine months of the financial year 2004/05, some 10,000 mortgage endowment complaints were resolved by our customer contact division that might otherwise have become “chargeable” cases requiring investigation.

Key activities for the current year 2004/05

2.6 Key areas of activity during the current year - 2004/05 - are as follows.

  • mortgage endowments
    For the third year running, the number of mortgage endowment cases we have dealt with has exceeded the number forecast in our budget. The forecast on which we consulted was 35,000 - a figure we increased to 50,000 in the light of feedback and our experience in 2003/04. In the event, we now expect to receive 67,000 new complaints - nearly double our estimate of a year ago. We have adapted our casework system to help us deal with these cases in as streamlined a way as possible. However, the nature of the complaints means that they require detailed examination to establish the circumstances (at the time of the sale) of the person to whom the endowment was sold, and then to judge whether the sale was suitable. We are working with the FSA and with major firms to try to ensure better-managed and smoother workflow of these complaints.
  • split capital investment trusts
    During 2004/05 we have seen a decrease in the number of new complaints about these investments. However, the work on resolving the complex issues involved continues to absorb considerable resource. In December 2004, the FSA announced the establishment of a “distribution fund”, with its own terms and conditions in relation to eligibility. This fund is entirely separate from the Financial Ombudsman Service. We understand that investors accepting a payment from the fund will no longer be able to pursue their complaint with the ombudsman service. More details of the distribution fund are available on the fund administrator’s website and in the “splits complaints” section of the “frequently asked questions” on our own website.
  • single premium investment bonds
    So-called “precipice bonds” are the second most common cause of complaint to the ombudsman service.
  • mortgage and general insurance intermediaries
    Mortgage lenders (other than banks and building societies) and mortgage intermediaries came under our jurisdiction for the first time in November 2004 - and insurance intermediaries came under our jurisdiction on 14 January 2005. This increases the number of authorised firms from under 10,000 to over 20,000, but we are not expecting a commensurate increase in new complaints.
  • Consumer Credit Bill
    In the 2004 Queen’s Speech, the government announced that it intended to introduce new legislation on consumer credit. One aspect of this legislation will be to give access to the Financial Ombudsman Service to consumers with unresolved disputes involving credit agreements with lenders. This is not likely to happen before the spring of 2006, and the legislation will come into effect over a period of time, in line with our ability to absorb the new work.

new complaints

2.7 Combining the number of mortgage endowment complaints (see para 2.6) and the number of complaints about other matters, we now expect the number of new complaints to be 108,000, 5% higher than our revised figure of 103,000 that we forecast in the spring of 2004. This increase is wholly related to complaints about mortgage endowments, which we now expect to rise to 67,000 - 34% higher than the forecast of 50,000.

Happily, the number of cases about matters other than mortgage endowments has fallen and we expect to have received fewer of these complaints by the end of 2004/05 than our estimated figure of 53,000. This is mainly because of a decline in the number of complaints referred to us about “precipice bonds” and split capital investment trusts. In addition, our forecast that some (as yet unidentified) issue might generate around 5,000 complaints in the current financial year does not now seem likely to materialise. And we do not expect to see any significant effect on complaint numbers as a result of extending our compulsory jurisdiction (in the latter part of this financial year) to cover mortgage and general insurance intermediaries.

cases resolved

2.8 We forecast that we will have resolved (“closed”) 93,000 cases by the end of 2004/05 - 21% more than last year, but 10% fewer than we had planned in the budget. (Cases closed by our customer contact division - see para 2.5 - are not included in this total.) Our ability to resolve cases as quickly as we would have liked has been affected by the challenge of having to recruit, train and integrate a significant number of new staff, as described in para 1.10.

productivity

2.9 We expect productivity to be 5% below budget, both for mortgage endowment cases and for cases about other matters. This is for the following reasons:

  • we have relied heavily on our most experienced adjudicators to help recruit, train, and mentor new staff, which has meant they have had less time to work on cases themselves; and
  • as described in para 2.5, we have made changes to our handling of mortgage endowment cases so that - where firms have already made appropriate offers - the cases are being resolved by our customer contact division rather than needing to be passed on for investigation as “chargeable” cases. This means that the cases that are referred to our case-handling teams are the more complex ones, where both sides are already deeply entrenched. This inevitably affects productivity levels as these disputes take much longer to resolve.

timeliness

2.10 In planning how we would deal with the likely increase in new complaints during 2004/05, we aimed to maintain our timeliness targets for cases about matters other than mortgage endowments. We felt it preferable for any unavoidable delays to affect mortgage endowment complaints, since (as explained in para 2.3) financial losses for those with mortgage endowments have generally not yet materialised.

In the event, our increasing workload, together with the complexity of many of the complaints reaching us, means that we are unlikely to meet our timeliness targets for 2004/05. We expect the amount of work-in-progress to increase to the equivalent of 28 weeks’ work, although 85% of this work should be completed within nine months and 90% within 12 months.

expenditure and unit cost

2.11 The lower number of cases closed and invoiced will reduce our expected income to £44.5m - 6% lower than forecast. Our expenditure will be 5% lower than budget - at £45.9m. We therefore expect a deficit for the year of £1.7m - £0.4m greater than we had budgeted for. Our unit cost is forecast to be £495, compared with the budget forecast of £470. These unit cost figures highlight our success in bringing down the cost of handling complaints since 2000/01, when the unit cost was in the region of £750.

summary

2.12

 
actual 2003/04
actual 9 months 2004/05
forecast 12 months 2004/05
budget 12 months 2004/05
opening work-in-progress
mortgage endowment complaints
6,078
26,056
26,056
26,056
other complaints
19,426
20,645
20,645
20,645
total
25,504
46,701
46,701
46,701
new complaints
mortgage endowment complaints
51,917
51,331
67,000
50,000
other complaints
45,984
30,277
41,000
53,000
total
97,901
81,608
108,000
103,000
cases resolved
mortgage endowment complaints
31,939
32,675
49,000
50,000
other complaints
44,765
29,221
44,000
53,000
total
76,704
61,896
93,000
103,000
closing work-in-progress
mortgage endowment complaints
26,056
44,712
44,056
26,056
other complaints
20,645
21,701
17,645
20,645
total
46,701
66,413
61,701
46,701
work in hand (weeks)
mortgage endowment complaints
24.5
37.0
35.7
27.1
other complaints
23.5
21.0
18.2
19.0
total
26.1
35.0
28.3
22.6
productivity
mortgage endowment complaints
7.6
6.2
6.2
6.9
other complaints
3.9
3.3
3.3
3.5
total
4.9
4.4
4.4
4.6
closed within 6 months
mortgage endowment complaints
56%
44%
other complaints
70%
70%
total
80%
65%
55%
80%
unit cost
£473
n/a
£495
£470