With mis-selling, general insurance regulation and a sharp rise in complaints, the Financial Ombudsman Service is working flat out, says Reidy Flynn . Peter Madigan reports
Considering most intermediaries regard a visit from the ombudsman in the same light as an appointment with the grim reaper, Reidy Flynn is surprisingly disarming. In an impressive career that has spanned 30 years, taken her across three continents and involved thousands of cases, Flynn has made a living out of law and adjudication.
A qualified barrister, Flynn worked her way up within the legal profession from an assistant legal adviser in London to highflying commercial practices in New York and Hong Kong, before returning to the UK to join the Insurance Ombudsman Bureau where she stayed for 12 years before moving across to her current role at the Financial Ombudsman Service (FOS) in 2000.
"I'm one of twenty ombudsmen who make the final decision on complaints received. I have four colleagues who work with me in the insurance division and we are the only people who can make decisions that are binding on firms, whether they are insurers or intermediaries," she says.
It has certainly been a busy time at the FOS in the last five years. Endowment complaints have rocketed, now accounting for more than 60% of all complaints received, and that figure is predicted to rise further over the next few years. In fact, both 2002 and 2003 saw a 19% increase in all complaints and Flynn expects this trend to continue.
"General insurance intermediaries are now subject to our jurisdiction as well as mortgage intermediaries, and other parties may also be brought into the FOS remit, so I think it is highly likely that we will have a greater increase in complaints," says Flynn.
By comparison, insurance accounts for just 15-20% of all complaints received by the FOS, although the number received is increasing by 8-10% on average each year. In terms of protection products, the FOS received 492 critical illness (CI) complaints last year, slightly down on the 582 it received in 2002. Perhaps more surprisingly, income protection (IP) received 792 complaints, again down on the 2002 figure of 872. When asked to suggest a reason why a product with a sixth of the sales of CI received over a third more complaints, Flynn is pragmatic.
Wider range
"One reason why we get more complaints about income protection is because the product has been around for a lot longer, so there is a much wider field of complainants. Even if it now just gets 18% of the sales of critical illness, we still get complaints about income protection policies that have been in force for 30 years," she says.
Flynn is not afraid to lay the blame for today's complaints at the door of the intermediary community either. "When dread disease cover started back in 1986, it covered a much narrower range of conditions and I think people who were buying those policies had a much better understanding of what they were paying for," she suggests.
"I think in the last five years the market has been widened so that everyone taking out a mortgage is a potential customer. Because of this, the sales process is not as in-depth as it used to be."
Despite the fact that her job is to resolve disputes between firms and individuals, Flynn has been an ombudsman long enough to realise that her job does not simply end at making a judgement. She is aware of the problems currently facing the CI market and is as keen to rectify them as any provider.
"Most critical illness policies will pay out if you have a heart bypass, but a consultant recently told me that bypass operations are hardly ever performed for heart conditions now. There are different forms of treatment that do not get covered in the critical illness definitions.
"Equally, insurers have expressed concern that clients may get a benefit under the policy for a heart attack or cancer, even though they have not had an illness that the medical profession considers critical because treatment is so much better now," she says.
If CI has been singled out for criticism, it will not be long before IP comes under similar scrutiny. In addition to issues of non-payment of benefit, Flynn also identifies a further complaint that many people neglect to consider.
"We get a lot of complaints where a person has successfully claimed on an income protection policy and then finds the benefit is far smaller than they thought it would be," she claims. "It is confusing for people who have a policy statement that says you have a monthly benefit of £1,000 but that in fact turns out to be the cap. It may be fully in accordance with the policy terms, but it is easy to see why somebody would be seriously disappointed with that," she adds.
While Flynn has spent the best part of two decades trying to come to the fairest judgement in often acrimonious circumstances, she is not immune to the criticisms that have been levelled at the FOS from organisations such as the Association of Independent Financial Advisers and the IFA Defence Union. These organisations have called for a curb on the fining power of the FOS to mitigate the risk that such levies present to small firms.
Impractical
Similarly, in an apparent pre-election bid to secure the corporate vote, the Conservative Party has called for the introduction of a refundable fee payable by complainants to the FOS in an attempt to tackle the increasing number of complaints that are besieging IFAs in the wake of the endowment mis-selling scandal.
Flynn however, believes that as a means to deter those attempting to take advantage of the FOS, such a move would prove impractical and ineffective.
"We thought about this seriously but it would be a nightmare to collect. Do we ask people to send in cash? What about cheques? What do we do if a cheque does not clear?" she asks.
"You can imagine the administration for this would be much more expensive than any reasonable fee. I don't think it would deter any frivolous complainants since they go to unreasonable lengths to pursue their complaints. A £25 fee would be very unlikely to deter most of them," she adds.
With more people under its jurisdiction and busier than ever before, the FOS is certainly facing interesting times ahead. Yet Flynn seems unfazed, as if she has seen it all before. Despite the resentment of some intermediaries of the work she does, and the never-ending stream of fresh complaints the FOS has to deal with, Flynn remains remarkably upbeat.
"Do you know that only 30% of complaints are upheld? You wouldn't necessarily get that from what you read in the press, would you?" she says.
