Companies' complaints handling
66. The way companies have been handling complaints
received from policyholders has been the subject of intense regulatory
activity. As the flow of complaints began to grow it soon became
evident that many companies were incapable of dealing effectively
with the problem. Sir Howard Davis, then head of the FSA, said
that "some firms complaints systems are currently snowed
under by indiscriminate claims for compensation by endowment mortgage
policyholders. Many have little prospect of success, and merely
delay the resolution of other, worthy claims." 
67. The industry has had difficulties in simply handling
the number of complaints received. Several companies told us that
the number of staff handing complaints had risen dramatically
over the past year or so. The FSA had originally imposed an eight
week deadline for companies to respond to complaints, but then
found it necessary to extend this deadline for several companies
as they have struggled to cope with the surging number of complaints.
The regulator has nevertheless informed the Committee that "all
firms are expected to be back on track with complaints by the
end of April 2004. Enforcement action will be pursued against
any firms that continue to fail to deal with complaints fairly,
consistently and promptly or fail to identify and remedy any recurring
or systemic problems."
68. As well as failing to process complaints in a
timely fashion, the industry also seems to have initially adopted
an unduly restrictive view of what constitutes reasonable grounds
for a complaint. The FSA told us "we issued guidance, agreed
with the Financial Ombudsman Service, in May 2001 on how firms,
found to be responsible for mis-selling, should deal with complaints
and calculate redress due"
and that "to further emphasise the importance of this, in
April 2002 John Tiner wrote to the chief executives of the largest
firms. He set out best practice for the way in which firms should
handle complaints and asked CEOs to review their firms' procedures
and experience in the light of the letter."
The practical effect of what the industry now terms the "Tiner
letter" has been a significant increase in the number of
complaints that companies are upholding, from 52% in Q3 2002 to
63% in Q3 2003,
although the improvement also reflects a series of targeted reviews
following "an analysis of mortgage endowment complaints procedures
for a sample of twelve large retail groups between 2001 and 2003."
The FSA has also told us that it intends to conduct "an analysis
in early 2004 of standards of complaints handling in a sample
of smaller IFAs, to assess whether there is action we should take
to improve complaints handling in that sector."
The FSA has been persistent in its attempts to ensure that the
companies handle complaints fairly and seems to have insisted
on a general strategy of the customer being given the benefit
of the doubt in cases where there is no clear evidence of whether
the endowment policy was mis-sold or not due to inadequate documentation.
It is very disappointing that it has required sustained pressure
from the FSA to ensure that companies handle complaints satisfactorily.
As with mis-selling, the need for repeated action to ensure fair
treatment for customers seems to confirm that the insurance industry
is locked into an unacceptable culture that focuses upon short
term sales rather than long term customer care.
69. The Financial Services Consumer Panel has argued
that one lesson to draw from recent events is that "the FSA
must approach its dealings with firms with a healthy dose of cynicism.
It is disturbing, but unsurprising, that it was not until the
FSA put pressure on firms to raise the standards in firms' complaint
handling that they did so." The Committee agrees with this
assessment. The industry's track record, both in terms of mis-selling
and in terms of handling complaints, has not been conducive to
an atmosphere of trust either between the industry and its customers
or between the industry and its regulator. Events have
demonstrated that in the future the FSA needs to be much more
rigorous in ensuring that its policies and strategies are being
effectively implemented by the financial services industry.
Complaints to the Financial Ombudsman
70. If a company rejects a policyholder's complaint
the policyholder has a right of appeal to the Financial Ombudsman
Service (FOS). As the endowment mortgage problem has grown, the
number of mortgage endowment complaints going to the Financial
Ombudsman has soared from under 3,000 in 1998-99 to almost 14,000
in 2002-03 and an anticipated 50,000 in 2003-04.
In 2003-04 mortgage endowment complaints are likely to comprise
around half of the Ombudsman's total work load. In spite of this
explosive growth, the Committee was pleased to hear from the FOS
that "our published timeliness targets are to resolve 45%
of complaints within three months, 80% of complaints within six
months and 90% within nine months. Our current closure rate for
mortgage endowment complaints is in line with these targets."
71. The FOS stated that "of the 13,570 complaints
the Financial Ombudsman Service resolved in 2002-03, 39% were
upheld, either substantially, or in part, in the favour of the
Consumer groups have highlighted the view that the percentage
of appeals the Ombudsman is upholding reflects poorly on the ability
of companies to adjudicate complaints fairly.
The FOS has further noted, however, that "in the case of
some firms we are upholding 60% of complaints while in others
we are upholding only 15%."
It is unacceptable that some companies' complaints handling
processes are so flawed that the Ombudsman is upholding over 50%
of consumer appeals against the companies' decisions. The FSA
should take swift action to ensure that these companies begin
treating their customers more fairly.
72. Consumer groups have highlighted two outstanding
problem areas in the Ombudsman process. One is the issue of unnecessary
delays in the paying of compensation by the company after the
Ombudsman has found in favour of the policyholder.
The other area of concern relates to policyholders who received
advice from IFAs. Many IFAs have now gone out of business and
claims against them must be made via the Financial Services Compensation
Scheme. Neither the Financial Services Compensation Scheme nor
the FOS have a remit to look at cases relating to IFAs prior to
however, consumer groups have expressed satisfaction at the way
the Ombudsman is coping in difficult circumstances. The Consumers'
Association told us that "we are very satisfied with the
way the Ombudsman is taking forward what must be a huge increase
in the complaints that are coming [through]",
a view broadly endorsed by the Financial Services Consumer Panel.
There remain concerns in the industry about the statutory framework
within which the FOS works (for example in respect of the lack
of symmetry between companies and complainants over rights of
appeal from its decisions) and concerns about some of its decisions.
In other respects, the Financial Ombudsman Service process appears
to be working acceptably as an appeals body for the consumer on
endowment mortgages and providing an efficient and accessible
73. The full complaints process can be lengthy and
complex and there are some consumers who are not covered by the
complaints process at all. We have heard from people who, when
faced with a prospective shortfall, have complained to the endowment
provider. The provider has, quite properly, indicated that in
the particular case the complaint lies with the IFA who sold the
policy. On making a complaint to the Ombudsman about the adviser,
the policyholder has been informed that where the policy was taken
out before 1988 the Ombudsman has no role. Additionally, if the
adviser has gone out of business, and the policyholder has quite
properly tried to claim from the Financial Services Compensation
Scheme, the policyholder will again have been informed that where
the policy was taken out before 1988 it is not covered by the
Scheme. Consumers may need more help in establishing fair redress
in some cases, with the main problem areas relating to policies
sold via IFAs prior to 1988.
134 www.financial-ombudsman.org.uk/faq/mortgage.htm Back
Q 225 Back
Ev 97 paragraphs 16 & 17 (HC 275) Back
ibid paragraph 18 (HC 275) Back
Qq 417, 418 Back
Q 419 Back
Q 139 Back
Q 135 Back
Ev 96 paragraph 13 (HC 275) Back
Q 227 Back
Q 457 Back
Q 232 Back
Q 459 Back
FSA annual meeting, 17 July 2003 Back
Ev 97 paragraph 24 (HC 275) Back
ibid paragraph 21 Back
ibid paragraph 22 Back
Ev 110 paragraph 21 Back
Ev 97 paragraph 24 Back
Ev 94 paragraph 12 (HC 275) Back
Ev 94 paragraph 20 (HC 275) Back
ibid paragraph 13 Back
Q 155 Back
Walter Merricks, Chief Ombudsman, speech to the Council of Mortgage
Lenders, 2 December 2003 Back
Q 156 Back
Q 225 Back
Q 156 Back