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ombudsman news

issue 114

December 2013

listening, learning, improving - focus on mobile phone insurance

In October's issue of ombudsman news, our chief ombudsman wrote about the importance of listening carefully to what unhappy people are saying - and using that feedback to improve products, services and relationships with customers.
It sounds good in theory. But can it really work in practice? ombudsman news asked Caroline Mitchell, lead ombudsman, to tell us more.

as a lead ombudsman, you're heavily involved in deciding the ombudsman's approach to different kinds of complaint. Do you have time to worry about complaints prevention?

I make time. We wouldn't be doing our job properly if we limited ourselves to just sorting out individual cases.
I don't accept that positives can't come out of a problem. As an ombudsman, it's my job to help consumers understand why something has happened, and to explain how and why we've reached our decision. Whatever the outcome for the consumer, we aim to help them move on from their problem so they can get on with their lives.

But just as important is helping businesses understand what's gone wrong, and if possible, suggesting how they could prevent it happening again in the future. This is really what we mean when we talk about sharing insight.

but aren't you limited in what you can do? You're not the regulator

You're right. We're not the regulator. It's not our job to make the rules for businesses. And it's certainly not our job to fine or punish a business if we find that they've done something wrong. But it is our job to work closely with the regulators - usually the Financial Conduct Authority and the Office of Fair Trading - and let them know what we're seeing.

has the ombudsman's intervention ever brought about wider change?

I've seen it happen quite a few times. I'd be worried if I hadn't in getting on for 30 years of "ombudsmanning"! But the best recent example is probably mobile phone insurance.

tell me more ...

In spring 2012 we realised something was going on with complaints involving mobile phone insurance. The uphold rate - that's the proportion of complaints where we found in favour of the consumer - was astonishing. It was running at about 90% - higher even than for PPI complaints. So we decided to ask one of our teams of adjudicators to focus on just these cases. With everything in one place, we thought it would be a lot easier to see what was going on - and whether there was anything we could do about it.

what did you find?

We found a big disparity between consumers' general expectations, and the cover that their mobile phone policy actually provided - or the way their insurer had applied their policy terms when they made a claim.

like what?

Generally speaking, there are only three reasons you would want cover for your phone - loss, theft or damage. We were seeing complaints from people whose phone had been stolen - but their claim had been rejected because there hadn't been any physical violence involved. We saw claims for stolen phones that had been rejected because the consumer hadn't witnessed the theft. And we heard from consumers who had claimed for accidental loss, but whose claims were rejected because they remembered where they had left the phone - usually on a bus or a train.

Then there were people whose claims for loss had been rejected because the insurer said they had left their phone unattended - when they were adamant that they had just "lost it".

We also saw complaints from people who hadn't realised that their policy would keep on renewing automatically each year - and sometimes way beyond the end of their "airtime contract" or the point at which the phone had any value. Many of these people hadn't been sent anything to tell them that their policy was being renewed annually.

what about people whose claims were accepted? What did they complain about?

Some consumers were unhappy that they were given a refurbished phone as a replacement rather than a new one. But as long as the policy terms made it clear that a refurbished phone would be provided, we didn't have a problem with that. But we did expect the replacement phone to be a like-for-like replacement - for example, its warranty period should have matched the remaining warranty on the insured phone.

that makes sense - were there any other issues you spotted?

You might not be surprised to hear that we saw a lot of complaints from people who hadn't even realised they actually had mobile phone insurance. This usually happened because the insurance had been added on automatically to the cost of the phone and the airtime contract. It's always disappointing to see cases like this - because businesses really should have learnt these lessons by now.

so you were seeing these issues coming up time and again - and you were upholding 90% of cases. What did you do about it? 

Once we had identified the issues, we sent out a number of "lead decisions" involving the big players in the market - to clarify our approach in this area. We also sent out several "batches" of decisions that involved the same issue. This helped the businesses involved see what was actually going on - and encouraged them to sit up and take notice.

For example, early on we sent out a "lead" decision about a policy sold as part of a bank account. In this case, the insurer had rejected the consumer's claim because they hadn't registered their mobile phone under the policy - and the cover hadn't kicked in. The business involved accepted our approach, and it stopped applying that requirement to claims from that point on. 

that sounds like it worked well for one or two businesses - but did it make any difference to the sector more widely?

At the time, the FCA was also carrying out a review of mobile phone insurance. So we got in touch with them, and with the Association of British Insurers. We told them what we were seeing, what our concerns were, and how we were approaching complaints about mobile phone insurance.

When the FCA finished its review, it published its findings and held an industry seminar to talk about the outcome. I spoke at the seminar and sat on the panel for a Q&A session.

how did the businesses respond?

While the FCA was doing its review, we had several meetings with the businesses who sold the most mobile phone insurance policies. And they were very receptive to what we were saying.

We worked closely with one business in particular - the one that had been involved in most of the complaints we'd been seeing. Since we met up with them and talked things through, that business has decided to stop selling compulsory insurance. They've changed their policy terms to reflect some of our recent decisions. They'll be sending annual renewal reminders to their customers. They have agreed to settle all their outstanding complaints in line with our decisions on similar cases. And in every complaint they receive, they tell the consumer that they are entitled to refer their case to the ombudsman service if they're not happy with the way it's been handled.

so what's happening now? Are you seeing any difference in the complaints coming to you?

We've already noticed that we're upholding a smaller proportion of complaints against that business. And we're able to progress cases much faster because we have better communication with them - and they understand our approach.

This year it looks as though we're going to have about half the number of complaints from that business compared with the number we've received in previous years. And we're seeing fewer complaints from other businesses too.

This is hugely satisfying. We have only been seeing about 600 mobile phone insurance complaints each year. But apparently there are about 13 million policies out there. So hopefully the progress that we, the regulator and the businesses have made will help customers who haven't - and won't - bring a complaint to the ombudsman. If that isn't a big impact, I don't know what is.

image: Caroline Mitchell, lead ombudsman
Caroline Mitchell, lead ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.