Peter Hinchliffe , lead Ombudsman for general insurance at the FOS, tells Johanna Gornitzki the industry needs to pull its socks up to gain back customer confidence
A lawyer by training, Peter Hinchliffe joined the Financial Ombudsman Services (FOS) at the same time as general insurance regulation came into effect in early 2005. At first, he anticipated the new regime would bring on a fair share of challenges, particularly as it involved communicating with a completely new group of people. However, he says with a sigh of relief, the move went very well.
In his role as lead Ombudsman for general insurance, Hinchliffe gets to encounter policyholders who are unhappy with their financial purchases on a daily basis.
Discussing the problems plaguing the insurance sector, Hinchliffe thinks many of the issues are the same as they were 10 or 20 years ago. "I think most firms and brokers in the sector recognise the issues as they haven't changed much over the years," he says.
That said, Hinchliffe admits the FOS has particular concerns about the protection sector compared with other areas covered by the insurance remit. "We get a lot of complaints about income protection (IP), critical illness (CI) insurance, long term care as well as private medical insurance (PMI). These are a particularly sensitive part of our workload. As we are all aware, these failed policies really matter to the individuals who bring them here, as well as to their relatives, friends, their MPs, and their local newspaper," he says.
In the past five years, the FOS has seen a big increase in protection claims, with IP, PMI and CI claims more than doubling in that period alone. Worryingly, Hinchliffe reveals that this rise in complaints is bigger than the market growth. He believes this is due to consumers' lack of understanding when it comes to protection products. "There are certain aspects of protection products that the public doesn't seem to get and I think that is driving the increase in volume. The sort of moral judgement you can apply to motor or household insurance doesn't seem to persuade them when it comes to protection disputes and they just feel hard done by," he says.
The most common complaint received by the Ombudsman is that a claim has not been paid. "When a complaint comes in about a claim that hasn't been paid it makes us look at what cause may have been behind it. It could have been mis-selling, the failure of an intermediary, or even the lack of clarity in the document. But we're not like the Financial Services Authority (FSA), we're not looking to see how people are carrying out their business. We are looking at what went wrong with a particular individual and, normally, what went wrong is that the claim wasn't paid," Hinchliffe explains.
He adds there are some issues that the FOS finds itself in constant dialogue with the sector about – non-disclosure being a key example. "I have been to a number of conferences and had dialogues with firms and reinsurers about this. I think people are very well aware of what the issues are around non-disclosure and I think there is a real desire to do something about it. But progress is very slow," Hinchliffe admits.
And although he strongly emphasises that it is not a request made by the FOS, he argues that a little bit of flexibility on the industry's part when it comes to non-disclosure could go a long way in a bid to restore the sector's reputation.
"We can see elsewhere in the sector that, in order to improve its public position, it may want to move on a little. I think the industry is paying a very high price in reputation terms in order to pursue the matter of a relatively small number of cases.
"What winds people up is this issue around the fact that the things disclosed have no relation to the claim they submitted. And as the public don't seem to get this then perhaps it would be nice to see insurers do something about improving that position. Because it is in their own best interest to improve the reputation of the market altogether," he says.
Dedication
Hinchliffe believes providers would be able to make this change within the next 12 months if they put their hearts into it, but adds that it is a case of everyone sitting on the fence and waiting for the first firm to make the leap. "We all know what the problems are so it would be nice to crack on with looking at the solutions," he spurs insurers.
"We are not condemning them however," Hinchliffe quickly adds, saying providers do not have an easy task when dealing with claims since they often have to make a decision within a few weeks compared with the eight months it usually takes for the FOS when handling a complaint.
"They may just need more time to get to the right answer. Only one in six of the calls we receive turn into actual complaints that we end up viewing in detail, so there are a lot of people saying 'this isn't right, is it?' And we're saying, 'well actually, I think you will find that is quite normal'," he says.
The majority of the complaints that the FOS takes on are settled. Hinchliffe explains: "It is the most common outcome. I think it is really important to remember that most people who come here end up settling their case after we helped them. Even though people come here very angry, or there are firms that have every doubt about our competence to deal with a claim, in the end, most people get over that and agree that there is a sensible compromise."
Hinchliffe says intermediaries play an important role when it comes to selling protection, admitting that products such as IP and CI "are among the most complex".
"There is no doubt that most people we see would have been better placed if they had gone to seek expert advice. There is a lot of misunderstanding about protection products among people who buy them. Therefore, there should be a market for expert advice," he argues.
Speaking of advice, there is another issue that Hinchliffe thinks is perhaps not acknowledged as much as it should be. That is the issue of when non-advice becomes advice. "Many firms have got very carefully scripted processes but along the way a conversation could take place that wasn't supposed to have taken place. You may not have wanted to have advice with the sale but actually you did and therefore the firm that sold it is now going to be responsible for the suitability of the product," he says.
However, he adds that firms usually tend to admit they have made a mistake when the Ombudsman points to the conversation that took place. "That is usually enough for some firms to say, 'we hold our hands up, it wasn't supposed to happen but it did and so we will put forward an offer or we will honour the claim'," he says.
Crystal ball gazing, Hinchliffe suspects that over the next five years the routes to market will be the focus and things will get better as there will be better sales processes in place, which will suit everybody.
He also predicts product developments will be on the cards. "I suspect somewhere around the payment protection insurance/PMI/IP/CI product range there is probably a better product waiting to get out that will combine two or three of those into something that's affordable."
Overall, his outlook is rather glum, and while he would like to see the number or complaints go down he believes that disputes will arise no matter how good the industry is. In particular, he says the protection industry has a heavy cross to bear, concluding: "Although our position is to put ourselves out of work and have no complaints left, I suspect the protection market will be one of the last ones to go."
