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how can the insurance industry improve its service and reputation?

Natalie Ceeney, chief ombudsman, shares her views with the Association of British Insurers (ABI)

London, 22 June 2011

is there a problem?

I think it would be hard for any of us to argue that we don't have a problem with the reputation of the insurance industry.

According to the Edelman Trust Barometer 2011, only 52% of people said they "trusted the insurance industry to do what is right" - compared with 68% of people who trusted the telecommunications industry. And a survey by the Chartered Insurance Institute last year revealed that 83% of students would never consider a job in insurance.

However - and this comment may surprise you - I don't believe there is a systemic problem with the insurance industry. And I suspect most of you would agree with me.

... and from the ombudsman's perspective?

I'm the Financial Ombudsman and I deal with complaints. So what I see is a lot of what goes wrong. The complaints we uphold include some of the worst cases of sales and claims practice. That's why consumers complain.

Excluding complaints about payment protection insurance (PPI) - more about those later! - the ombudsman service received just under 21,000 complaints about general insurance last year, a rise of 6% on the previous year.

This slight increase resulted from insurance complaints rising in two areas. Travel insurance disputes increased by 27% - and motor insurance complaints rose by 6%. But let's put this into perspective.

The entirety of the rise in travel insurance complaints was due to "volcanic ash" - where we received just over 700 complaints. Yet it's estimated that over a million people were affected by delays and disruption caused by ash from the volcanic eruption in Iceland in April and May 2010.

So the fact that only 700 cases were referred to us is a pretty strong indication that most insurers were very successful indeed in sorting out the huge number of affected policyholders - without complaints and grievances arising.

And turning to motor insurance - the 22 million policies held by motorists in the UK certainly put into perspective the 5,500 or so complaints referred to the ombudsman service each year about motor insurance.

In fact, even though most UK consumers have multiple insurance products, complaints relating to general insurance represent just 10% of our overall workload.

so what is the issue?

We know that consumers find it very difficult to differentiate in financial services - and increasingly see banking and insurance as one and the same.

This means that the financial failure of major high-street banks in 2008, and most recently the role of the banks in the PPI mis-selling saga, have cast a deep shadow across the whole financial services sector, including reputational fall-out for insurers.

But bad news stories involving the insurance sector specifically, when they happen, also drag down your reputation.

For example, back again to volcanic ash. Just a handful of insurers contested a small number of cases - but this meant that everyone suffered under the headlines about "insurers treating travellers badly".

And on the reform of insurance law - it's great that the whole sector is finally behind modernising the 1906 Marine Insurance Act. But some of the cases we've seen in the last few years are truly dismal. To cite two cases I've seen recently:

  • There's the case of a woman punched in the face on holiday in South Africa - where the insurer refused to pay out for her facial reconstruction after the assault, on the grounds she hadn't disclosed a sinus problem.
  • And the case of the woman who made a claim under a life and critical illness policy for breast cancer - but was turned down because she hadn't disclosed her asthma. When we investigated the case, it became clear that she had disclosed her condition on the application form but this had been overlooked by the insurer. In any case, her asthma was under control and she had never required hospitalisation.

In both of these cases we told the insurer to meet the claim. But the consumers involved shouldn't have needed to refer the disputes to us in the first place.

Does this matter? Well, the reality is that inevitably it's the unfortunate cases like these that get reported - and mar the reputation of the whole sector. The overwhelming majority of well-handed cases go unremarked and unreported.

We know that. It's human nature to focus on the bad - and that's the media's job. At the ombudsman service we actively talk up the good that we see - but we know that generally it's only the poor examples that people get to hear about.

... and what can we do about it?

I believe the most effective way of helping the reputation of the insurance sector is to stop the practices of the worst damaging that the reputation of the best.

In every area of our work, we see a few businesses behaving dismally. This is true whether it's about the sale of investments, the handling of insurance claims, or just customer service in general.

These are businesses that are damaging the sector's reputation as a whole. And it's their practices that need to be addressed.

I also believe that the insurance sector has a vital role to play in raising standards across the whole financial services industry - and not just those activities you are personally directly involved with.

A good example is payment protection insurance (PPI). We all know that what brought this insurance product into pretty much universal disrepute was the way in which it was sold - not the way in which claims were handled.

I've spoken to a number of insurers who have candidly told me, "we knew our product was being sold poorly, and we should have intervened earlier".

Not doing so has damaged confidence in financial services across the board. I believe that insurers could have played their part in helping avoid the recent PPI problems.

what part can the ombudsman play?

We have now been publishing complaints data about individual named businesses for two years. The data allows the performance of individual businesses to be differentiated.

We see the best insurers using this data proactively to show why they are good. And we're increasingly seeing the media and other commentators using the data to separate the chaff from the wheat - and to highlight the good.

We've gone out of our way to ensure that the public and the media understand that the PPI problems are sales related - and are not claims problems. We'll also be separating out PPI figures from general-insurance figures when we publish our next set of complaints data in September 2011.

and what can you do?

The ABI has done a great deal of work to help insurers pay more attention to complaints handling - and more generally, to help improve standards of customer service across the sector.

Only recently, for example, we saw the ABI supporting the reform of archaic marine insurance law - a great example of leadership for the sector.

There has also been some very positive joint work in recent years between the ombudsman service and the insurance sector - through the ABI - in areas such as flood, motor insurance and non-disclosure in critical illness. This work has led to the raising of standards and a levelling off - or even a drop - in the number of complaints referred to the ombudsman in these areas.

But I think there's the opportunity to do more - and to collaborate more.

For example, the insurance industry and the ABI largely opposed our plans, two years ago, to publish complaints data. But as I've pointed out earlier, we now have a lot of evidence to show that the sky hasn't fallen in as a result of our making this information publicly available.

In fact, by showing how different businesses handle complaints differently, the importance of complaints handling - and the benefits of getting it right - has risen significantly up the agenda of many businesses, and particularly the banks.

This shows that there is a lot more scope for working together on opportunities - rather than resisting change.

so let's work together to raise standards ...

... and let's put customers at the heart of what we all do. After all, surely that's what insurance is there for.

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