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"compensation culture" - good or bad for consumers?

Natalie Ceeney, chief ombudsman, takes part in debate with ABI and Which?

Manchester, 3 October 2011

Personally, I'm not sure that the hackneyed phrase "compensation culture" is any more helpful - or meaningful - than clich├ęd labels like "greedy banks". Both labels are attempts to stereotype, pigeon-hole and apportion blame in over-simplistic ways - when, as ever, the reality is so much more nuanced ...

As an ombudsman, what I stand for is an open and accessible way for consumers to raise complaints when things seem to have gone wrong. My aim is to provide a calm, professional service that helps to build consumer confidence in financial services, not undermine it.

If we decide that a financial business has done something wrong - and the consumer who's complained has lost out as a result - the ombudsman can direct the business how to put things right for that consumer. 

On the other hand, if we think the business has treated the consumer fairly - and the consumer has not lost out as a result of the business's actions - we will explain why this is so - from our entirely independent standpoint. 

In fact, whatever the outcome of an individual case, we aim to "add value" - by explaining our decision fairly, authoritatively and impartially.

This is part of our focus on mediating solutions - not taking adversarial positions. We want the consumer and the financial business to emerge from the complaint with mutual trust re-established.

So how, then, did we find ourselves in the position we're all now in - with customer trust, confidence and engagement at risk of being undermined by our (alleged) "compensation culture"?

Regretfully, from my point of view, there are a number of players who have contributed to this state of affairs.

The way some financial businesses have historically handled customer complaints seemed intended to make it difficult and intimidating for consumers to raise concerns when they heard there may be problems with mis-sold pensions, mortgage endowments or payment protection insurance (PPI).

From this, the rumour got around that you couldn't trust your bank or insurance company to sell financial products fairly. And you certainly couldn't trust them to deal with customer complaints fairly. I wish I could say otherwise - but sadly both rumours had a significant element of truth.

It was in this environment of mistrust and antagonism that the claims-management industry took root in the financial services sector. Claims-management companies exist because there has been genuine detriment to consumers - because consumers are not always aware of their rights and are often uncertain or fearful about how best to pursue them.

But claims managers have aggravated this situation. They thrive on distrust and hostility. To quote from one recent claims-management advert: why would you trust a bank to handle your complaint fairly when they mis-sold to you in the first place?  

And let's be very clear - most claims managers are not motivated by any pure desire to settle differences amicably and bring parties together through constructive mediation. What drives claims-management companies is the business imperative of maximising their own fee incomes - irrespective of the best interests of the parties concerned.

And our concerns here are entirely practical. Claims-management companies have been very effective in galvanising people to make a complaint who might otherwise not have got the compensation they were entitled to. But we've also seen cases where claims-management companies have failed pretty dismally in their job of representing consumers professionally - or where they have provided a service of very doubtful value.

And where we see poor behaviour by claims-management companies, we report it to the regulator - just as we do when we see poor behaviour by a financial services business.

But things clearly have to change. And positively, I think there's now a consensus starting to emerge on what needs to happen. Specifically, I'd like to see four things:

  • Claims managers should provide a level of professionalism comparable with other regulated sectors - and claims-management regulation needs to improve.
  • Financial services regulation needs to up its game - with the proposed regulatory reforms now rightly focusing on early intervention to tackle large-scale problems.
  • Financial businesses have a role - to think more about their customers in the design and sale of products.
  • And the ombudsman service can do more - to share more of what we see, and to help businesses and consumers nip problems in the bud before they escalate into complaints.

I believe that together - by which I mean financial businesses, trade associations, consumer groups, the ombudsman service, regulators and claims managers - we can all move forward constructively to help re-build trust and confidence in financial services. These two words are too important to become throw-away sound-bites in a war of words.

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