FOS annual review

Overall, increased complaints and uphold rates make for unsettling reading against the back drop of the FCA’s Business Plan

I have to be honest, I wasn’t convinced that the Ombudsman’s annual review would hold any real surprises – I was fairly sure pensions (specifically DB transfers) would feature heavily and I had an inkling consumer credit would be up there too.

More concerning though is it looks as though complaint numbers are increasing, which sees the ombudsman busier than it has been in the last five years. And there’s some information that makes for unsettling reading against the backdrop of the FCA’s messaging around cultural change within the industry and it’s chosen benchmarks.

This all means that there are a couple of clear messages businesses really need to take note of in terms of the landscape ahead for the next 12 months and beyond.

The full report can be found here –

Consumer credit complaints are on the up and so is the uphold rate

Caroline Wayman was pretty scathing in her foreword when she commented that what the service was seeing from the Consumer Credit sector was ‘unacceptable’ and that six in ten upheld complaints about short term lending have been as a result of poor lending decisions. Interestingly, she also commented that consumer credit businesses ‘aren’t learning enough from the complaints we’ve resolved’.

Taking PPI out of the picture, 33% of all complaints to the service were about consumer credit services and products, with significant increases in complaints about all types of loan (guarantor, instalment and payday) and other types of credit.

When this is considered against the backdrop of an increasing awareness of vulnerability and the messaging coming from both the FCA and ombudsman, that makes for sobering reading for this section of the industry.

But perhaps more sobering still is the fact that 50% of all consumer credit complaints are upheld (against the 47% the previous year). While this explains the comment that businesses aren’t learning from the decisions that are being issued, it also shows an underlying issue with complaints handling full stop.

Increasing numbers of complaints going to the ombudsman is a red flag anyway, in terms of general dissatisfaction from consumers, but when combined with the high uphold rate, it demonstrates this this section of the industry is fundamentally not getting to grips with complaints. This is something that will need to be addressed quickly and effectively if this area is to see the cultural changes that the FCA is keen to implement.

Pensions and advice in the spotlight

When looking at the other areas, consumer credit isn’t alone in receiving criticism from the ombudsman. Complaints about investment and pension products are also up.

I don’t think it’s any surprise to those working in this part of the industry that this is in part due to pension transfers. Specifically, advice relating to DB transfers has been highlighted in terms of leaving people’s retirement planning in tatters, as a result of poor advice or people losing out as a result of delays.

We know from speaking to businesses that DB transfer advice is generally something financial advisers are wary of and this seems to be borne out by the fact that 3 in 10 of the complaints relate to advice, while the remainder are about delays. This would suggest IFAs are listening to the general guidance of the FCA in not recommending transferring out of defined benefit schemes, especially as there have been complaints about not getting advice from customers. But the stats still show an increase on the number of complaints being made compared to last year.

But, perhaps more interesting is that there is more on the horizon in terms of pensions, because the ombudsman also sets alarms going when it mentions that complaints about SIPPs are also on the rise, with 40 new cases a week!

And for those that work within this area of pensions advice this must cause some concern, given the legal action that has been taking place on the Berkley Burke case covering ‘due diligence’. At the time of publishing this commentary, we understand that Berkley Burke is appealing the Judicial Review, which found in favour of the ombudsman, but regardless the judge’s decision will have implications for SIPP complaints, especially as the FCA has backed the ombudsman’s stance in terms of ‘due diligence’.

More unsettling still, for the eagle-eyed amongst us, you will notice that there is something of a ticking timebomb on this – 3,811 SIPP cases coming through the door (86% up on the previous year), compared to 232 resolutions in the past year. This isn’t a subject that is going to disappear anytime soon.

Insurance pricing and buildings insurance – something of a Groundhog Day  

And the last area that comes under scrutiny in the annual review is complaints about insurance. These have also increased (by 42%), with a focus on the pricing issue.

For those not aware, the pricing issue refers to customers that choose to renew their insurance year on year rather than shop around, ultimately resulting in them having significantly more expensive premiums than a new customer with the same company. Again, this subject ties into vulnerability, given that people in some situations aren’t really in a position to shop around or are unaware that they could benefit from cheaper premiums elsewhere.

But, perhaps the most interesting comment was regarding insurers not having done enough to recognise the impact of avoidable mistakes. This isn’t a new topic for us, and was a common theme when Sarah managed the technical desk at the Ombudsman service.

And clearly looking at the annual review, the fact that the ombudsman has chosen to focus on insurance and extreme weather, this can only mean that buildings, emergency cover and contents are in the firing line. This is borne out by the uphold rate stats that have been shared for these areas, with 35%, 45% and 27% respectively. While on their own you’d be forgiven for thinking, they aren’t that bad (well perhaps with the exception of the emergency insurance rate), they have remained largely static from the previous year’s (34%, 46%, 27% respectively). But, that says to us, that lessons aren’t being learned in terms of looking at the impact of insurance claims on the consumer.

So overall, insurance companies are failing to fully understand and grasp the impact of the mistake and then assessing the correct awards for consumers. They simply aren’t getting to grips with the complaint or the award that should be made based on the consumer’s individual circumstances. And again, that’s a red flag when read against the aims of the FCA’s business plan.

Reading against the backdrop of the FCA’s business plan

So, all in all, complaints numbers are rising across the board and the ombudsman has said some pretty near the knuckle comments in terms of the key areas they are seeing issues.

When you view this through the lens of the FCA’s recent business plan and its overall theme of cultural change, it makes for difficult reading, because what it says are that overall lessons aren’t being learned by the industry and more customers are unhappy enough to pursue their complaint.

Put simply, the FCA wants the industry to benchmark against upheld complaints, levels of redress and customer feedback, but as I pointed out in my last blog this is not new news and has been something written into the ombudsman’s DISP rules since 2013. However, what is new news is the fact that the FCA has really come out strong with this messaging in terms of making a meaningful cultural change.

For us, this means that businesses need to take a good look at their internal complaints process and make sure they are in the know on how to handle complaints. It also means that it’s not good enough to simply ‘allow’ complaints to be made to the ombudsman, because it’s easier. Real investment is needed in training and retaining staff. Making sure businesses understand how to resolve complaints the right way and also following trends coming from the ombudsman service, will lead to reduced complaint numbers, more satisfied customers and a cultural shift that benefits the businesses individually and the industry as a whole.

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