Background, process, funding, redress
The FOS was established in 2000, and given statutory powers in 2001 by the Financial Services and Markets Act 2000, to help settle disputes / complaints between consumers and UK-based businesses providing financial services, such as insurance companies.
The consumer must first give the business they are unhappy with the opportunity to look into the complaint itself, before the FOS can step in and make a decision on the dispute. The business has a maximum of 8 weeks to resolve the complaint. If they do not resolve it within 8 weeks, or the consumer is not happy with the response, then they can refer the complaint to the FOS.
The FOS is funded by the UK’s financial services sector through a combination of statutory levies and case fees which are paid by insurance companies and other financial businesses that are regulated by the Financial Conduct Authority (“FCA”). These statutory levies and fees are payable whether or not a complaint is upheld (agreed in favour of the complainant) by the FOS; the service is free to complainants.
The ombudsman has the authority to request or require a company to offer financial compensation or offer an apology, as a means of dispute resolution.
Around 90% of the disputes that the FOS resolves are settled at earlier informal stages by FOS Investigators, without the intervention of an ombudsman. An ombudsman’s decision is the final stage of the process and if the consumer with the complaint accepts a final decision, it is binding on both parties and enforceable in court.
If the consumer chooses not to accept an ombudsman’s decision, they can still take the matter to court instead.
The FOS website can be found at https://www.financial-ombudsman.org.uk/.
All decisions where an ombudsman was involved are published on the website along with selected case studies. The FOS also regularly publishes data and insight on the complaints that they handle, as well as their final decision letters.
The last annual complaints data for Insurance (Excluding PPI) for the year 1 April 2020 to 31 March 2021 is as follows:
- Total new complaints: 44,487
- 32,637 in 2019/20 – 36% increase
- Most complained-about product: car insurance – 10,899 new complaints
- Most complained-about issue: claim declined – 17,018 new complaints
- Overall uphold rate: 31%
- Highest uphold rate: special event insurance (wedding insurance) – 94%
- Lowest uphold rate: card protection insurance and personal accident insurance – 10%
In addition, JCBFL has extracted insurance related cases of >100 from a FOS report for the Quarter to 31 January 2022 showing the top ten number of enquiries set against the % of complaints that were actually upheld (in favour of the complainant):
- Car or Motorcycle Insurance – 3447 (27%)
- Buildings Insurance – 1389 (33%)
- Home Emergency Insurance – 739 (41%)
- Business Protection Insurance – 503 (11%)
- Travel Insurance – 501 (45%)
- Contents Insurance – 497 (28%)
- Per Insurance – 438 (25%)
- Private Medical or Dental Insurance – 351 (16%)
- Commercial Vehicle Insurance – 219 (32%)
- Mobile Phone Insurance – 203 (14%)
A few thoughts
The ombudsman makes decisions on the basis of what it believes is fair and reasonable in the particular circumstances of each case whilst taking into account relevant law and regulations, guidance and standards and codes of practice.
‘a posteriori’ approach to conduct risk regulation
Putting the published statistics of 44,487 Insurance (non-PPI) annual complaints into context, just for Motor Insurance, there are over 200 providers in the UK and the largest, Admiral, insures over 3 million drivers. The FOS and its activities are not, therefore, a route to correct poor general conduct on the part of insurers and any unfavourable findings are not a trigger for a change in culture, systems or processes at the insurer.
Given that the majority of policyholders will be unlikely to know whether there has been poor conduct in relation to their policy until they actually make a claim (and then a complaint if the insurance policy does not perform how they thought it would), FOS complaints data cannot be relied upon as a gauge of insurer performance in relation to conduct risk; that is within the remit of the Financial Conduct Authority and the governance structures of the insurers that they regulate which must, by definition, be an ‘a posteriori’ approach.
The Consumer Insurance (Disclosure and Misrepresentation) Act 2012 (CIDRA) – caveat emptor?
The FOS will make their own interpretations of various laws, whether at the initial investigation stage or upon referral to an ombudsman. This can be said for CIDRA where the FOS can make pronouncements on its interpretation of legislation, without recourse to court proceedings or previous precedent set by case law; that is, the FOS essentially steps into the shoes of Judge and Jury when interpreting legislation as it applies to some of the individual complaints that it looks into.
CIDRA requires consumers to take reasonable care not to make a misrepresentation when taking out a consumer insurance policy. The standard of care is that of a reasonable consumer and if a consumer fails to do this, the insurer has certain remedies provided the misrepresentation is what CIDRA describes as a ‘qualifying misrepresentation’. For it to be a qualifying misrepresentation the insurer has to show it would have offered the policy on different terms or not at all if the consumer had not made the misrepresentation.
CIDRA sets out a number of considerations for deciding whether the consumer failed to take reasonable care and the remedy available to the insurer under CIDRA depends on whether the qualifying misrepresentation was deliberate or reckless, or careless. Either way, the tables are somewhat turned on the complainant who can essentially be judged as guilty of incompetence (one interpretation of ‘careless’ in this context), or more perniciously, guilty of untruthfulness (one interpretation of ‘reckless’ in this context) without recourse to a legal process, which the FOS route is not.
Between the period 1 January 2021 and 13 March 2022, there were 317 ombudsman decisions in relation to Insurance (non-PPI) where CIDRA was the relevant legislation and where 171 of those decisions were not upheld (the complainant was judged guilty of careless or reckless misrepresentation). These cases can be found at: https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions.