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plan & budget 2005/06 for the year ending 31 March 2006 - introduction and key facts


1.1 The purpose of this plan & budget is to report on the performance of the Financial Ombudsman Service during 2004/05 and to consult on our proposed expenditure, caseload forecasts and funding for the year ending 31 March 2006.

1.2 In our last plan & budget, published in January 2004, we set out our strategy for dealing with the very substantial increase in the number of mortgage endowment complaints. That strategy took account of the need to ensure that our work on mortgage endowment cases did not disproportionately affect our ability to handle other types of complaint.

1.3 Since the publication of our last plan & budget, the volume of mortgage endowment complaints reaching the ombudsman service has continued to rise and it currently accounts for around two thirds of all new cases. For this reason, the key focus of this year's plan & budget is how we deal with the continuing surge of mortgage endowment cases, while still maintaining our service to those customers who refer complaints to us about the whole range of other issues that we cover.

1.4 Our board has undertaken a strategic review of our current workload, with reference to the functions that the ombudsman service was established to carry out. The conclusions of the review were that it is inappropriate to regard our mortgage endowment workload in the same way as the complaints referred to us about all the other matters we cover. This is mainly because of the nature and scale of the issues involved. The board has therefore determined to treat mortgage endowment complaints as a separate category and will be looking to set different standards of service for them.

1.5 The regulator has recently emphasised the importance of fair complaints-handling by firms. The apparent unwillingness or inability of some firms to devote sufficient resources to complaints-handling suggests that, rather than seeking to resolve matters themselves, they consider the £360 cost of referring a case to the ombudsman service to be a commercially attractive option.

1.6 Inevitably, poor complaints handling by firms leads to their rejecting a significant proportion of cases, many of which are referred to us. Generally, only 3% to 5% of unresolved complaints made to firms are then referred to the ombudsman service. For mortgage endowment complaints, however, this figure is nearer 20%. And significantly, we are now upholding a higher proportion of these mortgage endowment complaints - just under a half - compared with around a third for other types of complaint.

1.7 While some firms seem able to maintain good standards in their complaints-handling operations, others do not. They often reject complaints using a standardised process that involves little attention to the particular circumstances of the individual case. Meanwhile, an increasing number of consumers are represented by claims management companies who operate a similarly standardised approach in presenting the customer's complaint. So it is often not until the complaint is referred to us that its circumstances are examined in any detail. This, of course, has an adverse effect on our productivity and timeliness, which in turn affects our costs.

1.8 The business performance of the organisation is now highly dependent on the number of mortgage endowment complaints we receive. We have made an estimate for the coming year (as detailed in para 3.9) but if this is substantially exceeded, many aspects of the plan we have set out will be vulnerable.

1.9 Our complement of case handlers has doubled in the last year or so - to keep pace with the growth in complaints numbers. To meet the demands made by this rapid organisational growth, our plans include strengthening our management structure with the appointment of senior ombudsmen, a quality director and a corporate director. We also need to invest in maximising the full effectiveness of our workforce - including boosting the capacity of our human resources function to deliver enhanced training and development and management support. This follows recommendations made by Professor Elaine Kempson of Bristol University's Personal Finance Research Centre, who during 2004 carried out a detailed independent assessment of the way in which we perform our dispute resolution function. This investment in our organisational structure will increase our costs for 2005/06.

key points of the current year 2004/05

1.10 A summary of the key points of the current year - 2004/05 - is as follows.

dealing with complaints at the initial stage

Our customer contact division provides a single point of entry for all consumer enquiries. We forecast that we will have dealt with 524,000 enquiries by the year ended March 2005, compared with 441,462 in 2003/04. The increasing success of our customer contact division in resolving large numbers of consumers' mortgage endowment concerns at the earlier stage means, of course, that these do not figure in our formal new complaint statistics. (There is more about this aspect of our customer contact division's work in para 2.5.)

new complaints

We now expect to receive 108,000 new cases in 2004/05. This is 5% more than the figure of 103,000 that we forecast in the spring of 2004 when we agreed our budget for the year. We expect 67,000 of these complaints to be about mortgage endowments - compared with 51,917 in the year 2003/04. We now forecast that we will receive fewer complaints about other matters than we anticipated. Indeed, the number of complaints that do not involve mortgage endowments looks likely - at 41,000 - to be below the previous year's figure of 45,984. But any decrease in the number of these complaints is outweighed by the substantial further increase in mortgage endowment cases.

cases resolved

By the end of the financial year 2004/05 we will have recruited an additional 135 adjudicators to handle our increasing workload of complaints. We were not able to have as many of these new staff in post, early on in the year, as we would have liked. And the effect of integrating, training and mentoring these new staff has had a more pronounced effect than we expected on the productivity of our more experienced staff. This has resulted in our resolving and closing 10% fewer cases than we had planned - although our forecast of 93,000 resolved cases is still an increase of 21% on last year. This number does not include the 12,500 disputes that we expect to have been resolved by our customer contact division - disputes which would otherwise have been charged for and formally reported as resolved cases.

productivity and timeliness

The additional time and resources involved in recruiting and training new staff has impacted on our productivity and timeliness. Also, the early resolution of disputes by our customer contact division has resulted in a more complex case mix and depresses our productivity and timeliness figures. So our productivity - measured in terms of the number of cases resolved each week by each adjudicator - will be slightly lower than forecast.

unit cost

We expect our unit cost - the average cost of resolving a case at the ombudsman service - to be £495 (budget £470). This highlights how we have been successful in bringing down the cost of handling complaints at the ombudsman service since 2000/01, when the unit cost was in the region of £750.

key points for the budget year 2005/06

1.11 A summary of the key points for the budget year - 2005/06- is as follows.

new complaints

Accurately predicting complaint numbers and trends is an inexact science, but we have assumed an increase of 6% in the number of new complaints we expect to receive in 2005/06 - bringing the expected number of cases to 115,000. This reflects an expected small increase in both mortgage endowment complaints and complaints about other matters. It also takes into account the widening of our remit to cover complaints about mortgage and general insurance intermediaries.

cases resolved

With a full complement of adjudicators in post, we plan to resolve and close 116,000 cases during 2005/06 - an increase of 25% on the number we expect to resolve in 2004/05.

productivity and timeliness

Although our caseload appears to grow more complex, and complaints are more vigorously contested by both sides, we expect our productivity to fall only marginally. Our timeliness for mortgage endowment cases will be affected by the volume of work-in-progress carried over from 2004/05. We expect to meet all our timeliness targets for resolving complaints about matters other than mortgage endowments.

unit cost

We expect to see our unit cost fall to £456 in the year 2005/06, reflecting the higher number of cases we resolve and close during the year.