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annual review 2010/2011

1 April 2010 to 31 March 2011

chief ombudsman's report

I wrote my chief ombudsman's report last year after being in post for less than two months. I have now completed my first year, and I can report on a very busy - but successful - twelve months for the Financial Ombudsman Service.

The year marked our first decade of operations as the single ombudsman scheme, covering consumer complaints about virtually all aspects of personal finance. The world has changed a great deal over these last ten years. And not surprisingly, so have we.

What is very clear is the extent to which consumers and businesses alike now expect to be able to engage with institutions - and those in authority - in a personalised and easily-accessible way. We all expect issues to be resolved quickly, with a high level of professionalism and customer service. These expectations apply as much to the ombudsman service as they do to any other organisation or institution.

One of my priorities over the last year, as the new chief ombudsman, has been to re-examine our "operating model" - the way in which we plan for and resource the work we are required to carry out. The existing model has worked successfully for us over the last decade - but we need to adjust it to meet the scale of our current operation and the challenges now facing us.

A major issue has been to make sure that our organisational infrastructure is appropriately designed and resourced. As a demand-led service, we need to be ready to respond to whatever complaints come our way - with significant variation in the numbers and types of disputes we are called on to resolve. This can require variable numbers of staff - with different sets of professional skills and knowledge.

Unfortunately, we have not had the luxury of a "normal" year in which to plan ahead and re-design the service for the future. In fact, the year has been the busiest in our ten-year history. We have received more calls to our front-line consumer helpline than ever before. And even though we have been able to resolve four out of five problems and enquiries at this early stage - by giving general advice and guidance to over 800,000 people on what to do next - we have still had more consumers come to us with formal unresolved disputes than in any previous year.

As we describe elsewhere in this annual review, our workload this year has been dominated by one type of case - complaints about the sale and suitability of payment protection insurance (PPI).

This issue has now been with us for a number of years. We recorded the first substantial increase in the number of PPI cases in our annual review for 2007/2008 - at which point the volume of cases had increased six-fold. We subsequently told the Financial Services Authority (FSA) formally about our concerns over how financial businesses were handling PPI complaints.

We have not been the only body concerned with this issue over the last few years. Commentators and consumer groups have also raised concerns over how PPI has been sold. And regulators have taken action, so that PPI cannot now be sold in the way it was in the past.

The ombudsman is not a regulator. Our role is to resolve individual disputes between consumers and financial businesses. And the challenge for us has been to deal with the 57-fold increase in volumes of complaints about PPI over the last four years.

The ombudsman service has considerable experience of dealing with substantial volumes of complaints. And we started the financial year 2010/2011 prepared to scale up our operation - ready to deal with an increase in the number of PPI cases, if they were referred to us. But our flexible "operating model" fundamentally relies on our being able to resolve disputes between two parties (the business and the consumer) who both want to co-operate in resolving their dispute.

In the autumn of 2010, the British Bankers Association (BBA) launched a judicial review - on behalf of a number of high-street banks - against the FSA and the Financial Ombudsman Service. While awaiting the outcome of this legal challenge, some businesses said they would continue to handle PPI complaints as usual. But other businesses have effectively stopped handling PPI complaints in the normal way.

As the chairman has pointed out in his foreword, this has resulted in progress on most PPI cases slowing significantly - as well as to additional costs. As major businesses reduce the effort they put into resolving their customers' PPI complaints, it has also led to further record volumes of unresolved PPI cases being referred to us.

Just over half of our workload this year has involved the single product, PPI. But we have also continued to see - and resolve - as wide a range of complaints as ever, involving issues from debt and financial hardship to pension draw-down and asset allocation.

On later pages of this annual review we focus in more detail on some of the trends we have seen over the year across all areas of our insurance, banking and investment casework.

An inevitable feature of life at the ombudsman service is that we see where things have gone wrong - but not usually where things have gone right. So it might be worth highlighting, for example, just how few complaints we received this year about travel insurers, after the Icelandic volcanic ash-cloud disrupted travel and holidays in April and May 2010.

The widespread expectation had been that we would need to gear up to deal with thousands of ash-related travel-insurance disputes. But fortunately, these disputes never happened on that scale. Instead, the majority of travel insurers extended cover to their customers where travel policies may have been ambiguous - and sorted out problems quickly with their customers where they arose.

The level of complaints about financial businesses has been widely commented on during the year. Complaints are, of course, a good indication of how well or badly businesses are treating their customers more generally. We started publishing six-monthly complaints data relating to individual businesses in 2009. We also publish complaints data relating to financial products each quarter - showing the number of complaints we receive, and the number we uphold, for around 60 different financial products.

Making this information publicly available is having a positive impact. It raises awareness of how different businesses handle complaints. And it encourages senior managers to take complaints handling more seriously.

Aside from PPI, we have seen some encouraging signs of improvement during the year in the way some businesses are handling complaints. Complaints about a number of products other than PPI have now started to fall. This is especially encouraging, given the tough economic climate and the financial difficulties experienced by increasing numbers of consumers. I am sure it is proof of a real commitment to better complaints handling and improved customer service at some financial businesses.

From my own discussions over the year with the heads of major banks and insurers, I know that many businesses are now putting high-calibre senior managers in charge of their complaints teams - and that they are aiming to reduce both the number of front-line complaints they receive and the proportion of unresolved disputes that are then escalated to the ombudsman service. This is very welcome news - and something we actively support through the work we do to help businesses improve their complaints handling.

Our role is to ensure that the complaints we receive are resolved fairly and impartially and as quickly as we are able. Over the last year we have made significant improvements to the way we work, so that we can offer the service that customers now expect, on the scale at which we now operate.

One of our priorities has been to resolve complaints more quickly. As the chairman notes in his foreword, there has been a marked improvement over the year in the timeliness of our complaints handling. This means that we resolved almost half of cases (other than those about PPI) within three months. We have also recruited additional ombudsmen, to help with the significant increase in the number of cases requiring an ombudsman to make a final decision as the last "appeal" stage of our process.

Another priority has been to look at how we can operate more efficiently - even more pressing in today's austere economic climate. By streamlining our operational processes, re-examining how we use contractors, and reviewing all of our suppliers, we are already well on the way to cutting our cost base by 10%. We are using these savings in two ways - first, to keep our costs down, and secondly, to invest in our people and service.

As well as new investment in technology, we want to invest in the professional development of our staff. This is why we have ear-marked the cost savings we have already made, to fund enhanced training and development for our staff. We believe that by helping people develop their careers at the ombudsman service, we will be able to retain staff longer, strengthen their levels of expertise, and increase our reputation for excellence and professionalism.

At its heart, professionalism is about commitment to constant development and improvement. The priorities we have set ourselves for the coming year - described in our plans for a changing world which we published in March 2011 - reflect our ambitions to make sure we can offer an excellent service to all our customers, businesses and consumers alike.

As well as working to improve our own service, we will continue to engage with stakeholders - including financial businesses, claims-management companies and consumer groups - to help them resolve issues themselves where possible.

This is because what we are here for - and what I hope will be evident from this annual review - is both to settle disputes and to share what we see from those disputes, to help prevent future problems.

photo: Natalie Ceeney CBE

photo: Natalie Ceeney, chief ombudsman