Is past claims performance a guide to the future or will the FOS work on transparency be valuable to the industry? Gill Salton asks.
The advice given to investment customers that a past performance is no indication of a future one is very familiar. But can the same be said regarding a company’s claims handling performance in the protection industry?
When selecting a company to place business with, price and product are easily comparable with tools such as The Exchange or Aequos, but what about claims – how can their treatment be compared?
Care must be taken in choosing the right company to deliver the claims promise as not only will customers want to know that they will be treated fairly at claims stage but advisers will need to know that they have chosen the right company.
The Financial Ombudsman Service (FOS) has issued a consultation paper on how it feels information should be provided both for advisers and customers to enable the claims handling practices of a company to be taken into account when purchasing products.
This is following a commission by the FOS for Lord Hunt of Wirral MBE to undertake an independent review of that organisation’s transparency and accessibility. As part of his report, Lord Hunt said that he “could see no legitimate justification for withholding information about complaint performance as a matter of principle”. The FOS decided to proceed with these publications with the aim of “helping consumers, better-performing businesses and informing all stakeholders of its work”.
This is a positive approach. In principle, the aim is to assist advisers in making decisions about where to place business in conjunction with price and product specification. Consumers will also have a better understanding of how their claim is likely to be handled by a particular company. The industry should benefit from enhanced claims handling processes.
The FSA is also consulting on their intentions to publicise complaints data which, in line with the FOS’ intentions, clearly supports the principle of Treating Customers Fairly.
In its consultation paper Publication of complaint data next steps, September 2008, the FOS suggests it will include the following information:
Individual businesses – any company that has at least 30 new cases referred to the FOS and 30 closed cases within a specified period, suggested as six months, will be included.
Change in decision – any cases where there has been a change in favour of the consumer will be counted.
The outcome data will be the percentage of closed cases where the decision has been changed in favour of the consumer.
So will the publication of this data achieve the aims of the FOS? It will assist in the high level objective of determining which businesses handle claims the fairest. However, for consumers the bigger question must be “which business will be most equitable at paying my claim?” The publication of this simplified data will not assist the adviser or the consumer in answering this question for the following reasons:
- Insufficient detail.
The level of data needed to accurately compare complaints handling processes. The publication of these high level statistics, focusing on only one element of the process, will not provide advisers and consumers with the same level of comfort as comparing similar products. To provide more clarity, the data needs to be split, at the minimum, between financial sectors such as banking, credit, investment and insurance complaints. There should also be further division within each sector of the product the complaint relates to in order to promote further clarity. This information is already available to the FOS and is used in the production of its annual review.
- Low levels of health and protection complaints.
Complaints regarding health and protection claims represented only 1% of the new cases referred to the FOS in 2007/08. Based on figures available since the beginning of 2008, this figure has reduced further and is continuing to do so on a quarterly basis. Based on the FOS’ proposals, businesses that provide various products covering each of the financial sectors will have their complaints results reported as one figure. The health and protection sector has strived to improve its claims handling processes; non-disclosure has been reduced through application form clarity and definition wordings have been explained to aid consumer understanding. The reduction in the number of complaints referred to the FOS clearly demonstrates these efforts but reporting just at business level will not provide the adviser or consumer with the results to support this position.
- Legacy business and outdated products and philosophies.
Although the results publicised will be based on current claims practices, for ‘closed book’ companies, there will be no option of product improvement. Similarly, for ‘open book’ companies, products and philosophies are continuously being updated and so businesses could be judged on practices that are no longer adopted or on complex products that have been updated to promote consumer understanding. This can result in unfair results being publicised.
In line with the FOS guidelines, the complaints data in Table 1 (below) could be produced. From this, it is clear that Business B has a lower uphold rate in favour of the consumer and therefore must have the better claims handling process and pay more claims. But is this true?
The data in Table 2 (below) gives a different picture. Now which business has the best claims handling process and which treats customers the fairest?
Although Business B has the lower uphold rate on the cases that were referred to the FOS, the amount of claims they actually paid was lower. Business A paid 5% more claims than Business B and had fewer complaints referred to the FOS. Also, no consideration has been given to product type – Business B’s products could be more complex than Business A and therefore lead to more complaints.
There are also factors that can affect whether a complaint is referred to the FOS:
- Claims management procedures and philosophies.
Health and protection claims are usually very emotive, based on medical issues and can be financially detrimental, so the industry and the FOS need to play their parts in ensuring that valid claims are paid promptly and all complaints are assessed in line with the industry code of practice.
It is paramount that the claims assessment process is based on an open dialogue between the assessor and the claimant. The days of just gathering information from doctors to assess a claim are no longer appropriate. The use of a tele-claims service improves the claims handling process for claimants and insurers. Claims assessors need to engage with claimants so both fully understand the basis of the claim and if things do go wrong, it is imperative that this is fully discussed to enhance the understanding of both parties.
Also, although policy terms and conditions are similar, a company’s claims philosophy will have an impact on whether ‘borderline’ claims are paid or declined. The data published will not reflect the alignment with pricing and philosophy assumptions.
- Quality of declinature letters
Companies that engage with the claimant during the claims assessment process and produce declinature letters that clearly set out why the claim has been declined have a better chance of gaining the understanding of the claimant and therefore fewer complaints are likely to be referred to the FOS.
Consumers should be provided with a tool to enable them to see how a company handles complaints. However, the FOS should ensure they provide sufficient detail so consumers can relate this to the product or service they are purchasing. With the proposals that have been made, there is the risk of the small number of health and protection claims that are referred to the FOS each year being swamped becoming the high numbers of other complaints such as unauthorised overdraft charges or payment protection insurance grumbles. Also, in view of the threshold for companies to be included in the report, only the large providers are likely to be reported on and therefore no information will be available on smaller companies.
The Whole picture
There is a risk that, by just publicising final results, the FOS could play an unintended part in widening the savings and protection gap. Any publication issued needs to promote the number of financial products and services sold each year and how few result in a complaint referred to the FOS.
Russ Whitworth, claims and underwriting director at Legal & General, said: “It is very encouraging for us as an industry that protection referrals to the FOS are reducing and are at historically low levels. However, reporting one statistic on the complaints upheld rate across the whole financial services industry will not be informative to customers and inappropriate conclusions on individual companies could be drawn. While we support the principle of giving customers information, it must be given in context and I hope the consultation exercise will encourage this.”
FOS requested a response to its publication by 24 December 2008 and the FSA is currently reviewing its responses. It is imperative for the industry and consumers that the issues these publications have raised are satisfactorily resolved and are issued simultaneously to ensure they fully serve their intended purposes.
Gill Salton is underwriting and claims development technician for Scor Global Life and she participated in the Association of British Insurers and the Investment and Life Assurance Group working parties on their responses to FOS on this consultation
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