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complaints, reputation
and re-building trust

Natalie Ceeney, chief ombudsman, speaks at the ABI conference on "conduct regulation"

London, September 2012

I welcome the opportunity to speak to you today.

I've come today to share my thoughts about the future of redress. Or, more simply, what our customers would see as "how we put wrongs right".

I'm sure you're expecting me to talk about the role of the ombudsman - today and in the future. I will do that. But my focus today is more about how we need to make the system work better. How we put wrongs right more quickly and more effectively.

Because - as I think we all now recognise - we have a problem. I hope that just about everyone in financial services would now agree that over many years the conduct of businesses has fallen well below the standard rightly expected of them.

The demands for change are - rightly - increasingly loud. Over the last 12 years we have seen a litany of mis-selling scandals and fines.

In many cases, regulators seem neither to have had the tools nor the readiness to tackle systemic shortcomings head-on. And in many cases, financial services businesses have done their best to stop action being taken - including, just over a year ago, challenging the FSA's PPI guidance very publicly in the High Court.

And in consequence, the Financial Ombudsman Service has too often been left to pick up much of the burden - handling hundreds of thousands of disputes about mortgage endowments, bank charges and payment protection insurance (PPI) - not to mention other systemic and large-scale problems such as Equitable Life and split capital investment trusts. Even now, we are receiving over 1,000 complaints every day about PPI.

So what I want to talk about today is the future. How we work together to restore confidence and trust. What we do to deal quickly and fairly with problems when things go wrong. And how we deliver the levels of service that our customers rightly expect.

how are things working today?

I'm very mindful that I'm talking today to an audience of insurers, not bankers. And that many of you are probably thinking, "the problem isn't ours." I'm afraid I want to start by challenging that notion.

Of course, it's certainly true that many of the recent scandals - whether the widespread mis-selling of PPI, interest rate swaps, LIBOR or the series of fines for poor complaint handling - have largely fallen at the door of the banks. But the public are not making a clear distinction between banks and the rest of the financial services sector.

Consumer trust in banks is certainly at its lowest in living memory. According to a survey commissioned by Which? earlier this month, 71% of the UK population don't trust the banks and feel they haven't learned from their mistakes. But trust in financial services as a whole is also lower than ever - with the YouGov SixthSense Poll (June 2012) revealing that only 53% of consumers are willing to trust financial services.

And of course, trust really matters. What is insurance, if not a promise to deal with a problem if it arises in the future? And an investment, if not a promise to look after someone's money wisely? Arguably, trust matters more in financial services than in virtually other sector - as that's what you're all trading in.

But at the ombudsman service we see where things are going wrong. And things are going wrong in your sector. Too often financial businesses - insurers as well as banks - have delayed responding to justified grievances and thrown barriers in the way of those seeking fair redress.

The lack of consumer trust is visibly displayed by the growth of the claims management sector - which feeds on the concerns of consumers that they can't trust businesses and need the help and paid representation of claims managers to be "on their side".

is the problem really just banks?

Large mis-selling scandals such as PPI have dominated the complaints and redress landscape and effectively masked the performance of other sectors, such as insurers. But if we strip out the PPI data, the story is a concerning one for the insurance sector too.

Over the last three years, leaving PPI and bank charges to one side, the ombudsman service has seen a gradual reduction in complaints across the banking sector and IFAs. And in the cases we've investigated, we've found against banks and IFAs less frequently.

In marked contrast, we've seen a rise in complaints about insurers. And, in the cases we've investigated, we've been finding against insurers more frequently.

In short, we're concerned that we're now seeing more going wrong in insurance than we were a few years ago. And that when things are going wrong, they're not being put right sufficiently quickly or sufficiently well.

The ombudsman service dealt with over 250,000 individual disputes last year. And we're now receiving over 1,500 new complaints every day. This is a significant rise on the 20,000 cases we handled in the first year we were first set up - just over a decade ago.

As chief ombudsman, you'll understand that I don't personally get involved with all these cases. But I do see a fair number crossing my desk. So let me illustrate my concerns with just a small sample of what I've recently seen - and what I see going wrong.

  • An elderly lady, driving home on her own, hit a badger on a country lane at night. She didn't have a mobile phone, and as her car seemed to be driving and handling normally, she carried on home. When, several miles later, her car started making a strange noise, she drove on until she'd found a safe place to pull over. Her insurer refused to pay out in full, as she hadn't stopped her car when she first hit the animal.
  • A woman who had already lost her first child to complications at childbirth was medically advised to have an elective caesarean for her second child. The insurer refused to cover this, even though the policy allowed for emergency caesareans - and, by definition in this consumer's case, without an elective caesarean, she was going to give birth through an emergency caesarean. When the dispute was referred to us, the consumer was six months pregnant. Despite our ruling in her favour, the insurer still disputed the findings right up until she gave birth - delivering the baby as an emergency and spending days in intensive care.
  • A single mother reported a leak in her kitchen. Her insurer arranged for her to stay in a hotel for ten days while emergency repair work was carried out in her home. But it failed to get the repairs completed on time - and the mother and her two young children had to stay on in the hotel for several weeks. Then, without any advance notice - and on Christmas Eve - the insurer told her that it would no longer pay for the hotel accommodation and she had to move back home - even though it had put her furniture in long-term storage.

I'm afraid these aren't isolated cases. And all of these cases involve major insurers - household names.

not all insurers are the same

But I'd also point out that performance amongst insurers varies markedly. If I compare the largest ten general insurers we deal with - by volume of complaints - we see significant differences. At the disappointing end, we found against some insurers in over half of the cases we investigated.

Yet for the best performers, we found in their favour two thirds of the time. There are some insurers we deal with who listen to us at our informal dispute-resolution stage - and if we think they've got things wrong, they do their best to put it right quickly.

In contrast, we see some insurers contesting disputes as a matter of routine - all the way to our ombudsman - even on issues where our approach is well known and well established. This can only add delay and stress for the consumers involved.

So what needs to be done?

what change is needed?

first - structure

Much of the debate so far about improving financial services has focused on structure and regulation. How to prevent future problems arising - and how to stop consumer detriment building.

Positively, there's growing consensus about the scale and nature of the problem. And in the circumstances, there's a great deal of commonality of analysis about where the solutions lie.

This consensus is, I think, well captured in the government's draft legislation currently making its way through Parliament. It involves a new regulator resourced for - and focused on - so-called "conduct" issues. Crucially, a new culture of regulation that the FSA itself has started to map out - and that I know Martin Wheatley and his shadow Financial Conduct Authority team are developing.

A regulator ready and able to take action where that is required - and equipped to make decisions, even where these may not always be universally welcomed by all its many stakeholders.

The ombudsman will certainly play its part in this new framework. And we'll work closely and collaboratively with the Financial Conduct Authority (FCA).

We also welcome the continued commitment in the government's draft legislation to an impartial and independent ombudsman service. A service that can continue to step in to resolve individual cases where financial businesses and their customers cannot agree.

Securing our independence is not always as straightforward as it may first appear. But our independence from industry and consumer groups - and indeed from regulation - is critical. We need to maintain the confidence and trust of all parties in the disputes we resolve through our independent-minded and impartial judgements.

I believe that the independence of the ombudsman helps build consumer trust. In fact, the ombudsman service is currently one of the more highly trusted players in the financial services sector - with 70% people saying they would trust the ombudsman(compared with 80% who would trust Citizens Advice and 45% who would trust the British Bankers Association).

So I think we all agree that consumer trust has to be a priority for everyone working in financial services.

The government's proposals also place new responsibilities on the ombudsman service to alert the regulator to new issues that we see emerging through our work. Issues where the regulator should perhaps step in and take action.

It's essential that problems are nipped in the bud before they develop into widespread consumer detriment that involves costs for all concerned - and which destroys trust.  

This is a responsibility we already take seriously. We meet regularly with the FSA and OFT - not least through the formal coordination committee - to provide insight into the regulator's assessment of conduct risks. Our insight into the problems experienced by consumers can directly inform regulatory thinking.

So I see a new regulator better armed than before with insights into the real issues experienced by consumers across financial services. And I believe that this will enable the FCA to be better placed and more willing to take action where problems have arisen.

... but secondly - culture

But rightly, public debate has also focused heavily on the culture and approach of individual institutions. Even the best regulator, and the most efficient ombudsman, cannot create a "zero failure regime".

The responsibility for delivering a great service to customers - getting back to basics and "treating customers fairly" - lies with individual financial institutions. And I believe we have some way to go here - not just in the banking sector, but also in insurance.

In many ways, the issues here are indeed basic. At the ombudsman service we've seen few new issues in general insurance in the twelve years we've been operating. So this isn't about learning new rules, or applying new principles. It's about getting the basics right.

This shouldn't be hard to do - if you lead a business that really wants to deliver a first-rate service to its customers. Where we see problems in insurance, it's usually because the service (or approach to claims) simply doesn't live up to the promise given in the marketing literature.

Or where customers are dealt with as numbers - and not as human beings with families, lives and ordinary needs. And where complaints are seen as "compliance activities" - and not as opportunities to create loyalty and to put wrongs right.

So isn't getting this right ultimately just about having the right culture?

There's good practice out there. What I'd like to see is everyone striving to meet that good practice - and deliver to the best standards.

... and thirdly - meeting the new needs of customers

In many ways, getting a strong regulatory culture - and treating customers fairly - is nothing new. As I've said, much of this is overdue. And in the meantime, our customers' needs have kept changing.

We now live in a "24/7", Twitter-enabled world, where issues can become "viral" in hours. People's expectations are of instant access to information, and instant response to problems. Anyone who thinks this isn't changing the world of redress is living in isolation.

At the ombudsman, we've already started to see significant impacts of this change in expectations and behaviour. Our research shows that the 16-24 generation is, unsurprisingly, far less likely than others to use formal complaints mechanisms.

But that doesn't mean that young people don't complain when they receive poor service. Of course, what they do instead is use social media. So an issue which you might have had the opportunity to deal with one to-one is now broadcast to thousands - or even millions.

Complaints are no longer - even if they ever were - about "compliance" and individual restitution. They're now about reputation, first and foremost.

The Twitter revolution, coupled with the Freedom of Information Act, Wikileaks - even the disclosure of internal Barclays emails in the LIBOR investigation - also tells us that transparency is now the expectation, not the exception.

The new legislation will require, not just permit, the ombudsman service to publish all of its final decisions. That will, rightly, put all of our practices under the spotlight.

But another major implication we're seeing is the drive for speed. One of the first insurance "crises" I saw, when I joined the ombudsman just over two years ago, was the volcanic ash cloud affecting travel insurance.

As you'll recall, most insurers agreed to compensate customers who had been unable to travel or were stranded abroad. But one insurer challenged our approach in the courts. The 300 or so consumers affected by this dispute waited patiently for almost a year for the issue to be resolved.

More recently, there was an equally high level of media interest in the withdrawal of pet insurance by a major provider. But this was a story where we'd actually received only 14 complaints.

However, there was no way that these consumers would tolerate waiting a year. And the issue risked seriously undermining the business's reputation. So we worked hard to issue an ombudsman decision at speed.

So patience and tolerance for bureaucracy are becoming things of the past. And these are things we can't ignore.

This is why at the ombudsman service we've been working with a few businesses on new ways of working. In a radical experiment - which we've described in ombudsman news - we streamlined all our processes as well as the bureaucracy of the businesses involved. And the results were staggering.

We resolved more than half of all cases involving these businesses within 14 days - and sorted out many on the same day. But more than that, satisfaction levels with the new service were at an unprecedented high - even where cases weren't "upheld".

For consumers, regardless of the outcome, they felt listened to. And because the issues were dealt with so promptly, most consumers stayed loyal to the business. Meanwhile, the businesses received valuable live feedback that they could use to improve their service.

As we know, research shows that if complaints are put right quickly and effectively, customers become more loyal to the business, not less. And the costs of working this new way were broadly equivalent to our current, paper-based ways of working.

If we're going to build trust back in financial services, we need to be able to put wrongs right quickly. So over the coming year I'll be exploring with some of the major insurers - as well as the banks - whether you're prepared to explore working in this new way.

but we all have a role to play

So change is needed. Not just in banks. Not just in the way regulators and the ombudsman service works. But also in the insurance sector. Consumers and financial businesses all want to see trust restored, and there doesn't seem any better way of doing it than focusing on how we put wrongs right.

I want an environment where consumers trust in the promise they were sold. Where if things go wrong, consumers trust that they don't need a paid representative or clever tricks to ensure their case will be handled fairly.

And if agreement can't be reached promptly between the consumer and the business, I want both sides to trust that the ombudsman will cut through the jargon and the small print - to reach clear and fair answers to disputes.

I want both sides to trust that concerns and complaints will be handled efficiently - and that outcomes and any redress will be clear and fair both to businesses and to consumers.

We all have a role to play in achieving those goals.

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