Financial Ombudsman Service s consultation transparency and the Financial Ombudsman Service publishing ombudsman decisions: next steps

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1 Financial Ombudsman Service s consultation transparency and the Financial Ombudsman Service publishing ombudsman decisions: next steps The UK Insurance Industry 1. The UK insurance industry is the third largest in the world and the largest in Europe. It is a vital part of the UK economy, managing investments amounting to 26% of the UK s total net worth and contributing 10.4 billion in taxes to the Government. Employing over 290,000 people in the UK alone, the insurance industry is also one of this country s major exporters, with 28% of its net premium income coming from overseas business. 2. Insurance helps individuals and businesses protect themselves against the everyday risks they face, enabling people to own homes, travel overseas, provide for a financially secure future and run businesses. Insurance underpins a healthy and prosperous society, enabling businesses and individuals to thrive, safe in the knowledge that problems can be handled and risks carefully managed. Every day, our members pay out 147 million in benefits to pensioners and long-term savers as well as 60 million in general insurance claims. The ABI 3. The ABI is the voice of insurance, representing the general insurance, protection, investment and long-term savings industry. It was formed in 1985 to represent the whole of the industry and today has over 300 members, accounting for some 90% of premiums in the UK. 4. The ABI s role is to: Be the voice of the UK insurance industry, leading debate and speaking up for insurers. Represent the UK insurance industry to government, regulators and policy makers in the UK, EU and internationally, driving effective public policy and regulation. Advocate high standards of customer service within the industry and provide useful information to the public about insurance. Promote the benefits of insurance to the government, regulators, policy makers and the public. 5. The ABI welcomes the opportunity to respond to the Financial Ombudsman Service s consultation transparency and the Financial Ombudsman Service publishing ombudsman decisions: next steps Overall comments 6. We welcome early engagement by the FOS on the issue of publication of ombudsman decisions. We support greater transparency regarding FOS decisionmaking but we are unclear what problem publishing all decisions is intended to solve. Transparency is a means to an end (increased accountability and improved outcomes for consumers) not an end in itself.

2 7. There is a danger that the stock of ombudsmen determinations will unintentionally be interpreted by firms and consumers as a second rulebook. It may also deter firms from appealing an adjudicator s decision to an ombudsman, even if they regard the adjudicator s decision to be a poor one. 8. The ABI share the view of the FOS that most decisions are individual and unique with no broader implications or learning points. The FOS acknowledges in the paper that looking through large numbers of ombudsman decisions is not the way that most consumers and financial businesses will prefer to learn about our approach. Therefore putting them all in the public domain will not serve a useful purpose. 9. However, a small minority of cases can raise broader issues. We would prefer the FOS to work with industry and consumer groups to select appropriate cases, building on the current model of publication of anonymised case studies, ombudsman news and technical notes. For example, the FOS recently published a provisional decision on Arch Cru, making clear this represented the Ombudsman s general approach to that kind of case. This model is an effective way of: Explaining and illustrating the FOS approach to cases. Supporting industry to further improve standards. Enhancing consumer confidence in the financial system. 10. We wish to emphasise the following additional key points: Transparency and openness of decision making does not require the naming of any party to a dispute. The published decision should determine the material facts that may or may not apply to one or more financial institution. If firms are to be named in the decision this should be balanced by safeguards for a firm to challenge publication which it considers would be inappropriate. There is a risk that the publication of decisions including firm names will be used by Claims Management Companies (CMCs) to drive unfounded customer complaints. CMCs will mine data for the purpose of, for example, generating standardised complaints without bearing in mind the specifics of the case or submitting phantom claims. This could cause consumer detriment. There should be a clear process in place for determining whether a decision is suitable for publication, including quality and consistency monitoring. 11. The attached annex sets out our comments in response to the consultation questions.

3 Questions for consultation Annex 1. Do you agree with our overall approach? Are there other considerations we should bear in mind, in approaching the publication of our ombudsmen s final decisions? We support the agreed principle of proportionate transparency and openness where it improves standards and enhances confidence in the financial system. We also welcome moves to improve the accountability of the Financial Ombudsman Service (FOS). We agree that the availability of clear information on FOS decision making and key FOS decisions, is beneficial for consumers and industry. However, as we have made clear in our recent consultation response on regulatory reform to the Government and FSA, we do not agree with the proposal to publish all final decisions. We believe the FOS stated objectives would be better served by expanding the current practice of publishing anonymised case studies, lead decisions on key issues and technical notes. We are concerned that the publication of the substantial majority of decisions, when taken in conjunction with FSA rules/guidance requiring firms to take account of ombudsman decisions, will be interpreted by consumers and firms as a second rule book. This will result in a system more extensive and burdensome that the legal system which only publishes notable cases. Since Lord Hunt s review in 2008, significant progress has been made in making information about FOS available to consumers and firms. It is unclear what the benefits of publication of all decisions will be for consumers or whether publication is something that consumers expect or want. Consumer research, conducted for the Legal Ombudsman when investigating whether to publish decisions, found that the levels of interest in publication of Legal Ombudsman case results were relatively low. The report also noted that there was little sign of consumers visiting other regulators websites for case report information. We are not persuaded that the approach outlined will easily enable consumers and firms to compare and contrast decisions. The myriad of decisions will be confusing and may create false expectations of what may or may not be successful grounds for complaint. The sheer volume of decisions will also make it difficult for consumers and firms to extract relevant information. The consultation paper acknowledges that looking through large numbers of ombudsman decisions is not the way that most consumers and financial businesses will prefer to learn about our approach. Accordingly, the methodology should centre on what will meet the needs of the user (i.e. consumers and firms). We welcome the FOS intention to conduct consumer research. Before the FOSD or the Government reaches any decision on what should be published, it is important to determine what information stakeholders would like to see and would benefit most from. We would also welcome further engagement with the FOS following this consultation.

4 We are concerned that the approach proposed may result in the publication of some poor quality and inconsistent decisions. Insurers have concerns about the quality and consistency of decision-making, particularly by adjudicators, but sometimes also ombudsmen. Some variation in quality of decisions is inevitable, particularly given the growing numbers of ombudsman, but we have reservations about putting such decisions in the public domain. Once a decision is made public it will be very difficult to retract. Publication of inconsistent or poor quality decisions could undermine confidence in the industry and the role of the FOS. When developing these proposals further it is vital that the FOS considers its approach to quality and consistency. Any approach should be transparent. The consultation paper states that it is unlikely that publication will enable CMCs to identify new target areas or focus unfairly on certain businesses. We believe there is a risk that CMCs will mine data for the purpose of, for example, generating standardised complaints without bearing in mind the specifics of the case or submitting phantom claims. They may also selectively quote from decisions thereby creating a misleading picture of a complaint to firms, the FOS and the consumer. Currently 45% of complaints handled by the Ombudsman Service involve CMCs. The Insurance Fraud Bureau reports that 85% of fraud operations involve CMCs. Insurers frequently see examples of CMCs acting without authority, submitting phantom claims and auto-forwarding complaints to the Ombudsman Service, regardless of the reason for the rejection by the provider. For example, one firm estimates that in approximately 20% of Payment Protection Insurance complaints they receive from CMCs, the complainant has never held a policy with the firm. We would welcome, as part of any impact assessment, further exploration of the consideration of the effect of the proposals on CMC behaviour and the associated impact on consumers and firms. 2. Do you agree that we should not publish the views of adjudicators instead limiting the publication of decisions to those made by our ombudsmen? We agree that adjudicator s views should not be published. These views may not be the end of the process for the consumer or the firm. Publication could create a misleading view of the outcome. Also quality is inevitably more variable given the numbers of adjudicators and volumes of cases. We also agree that it would be unworkable and costly given the number of cases considered. 3. Do you agree that our published reports on cases should not normally be specially commissioned summaries, but the actual determination made by the ombudsman (subject to the appropriate safeguards)? We agree that, should the proposal to publish all ombudsman decisions be taken forward, the full decision and not a specially commissioned summary should be published. Specially commissioned summaries may be open to the criticism that they are not an accurate reflection of the case. They may also be viewed as the FOS editorialising decisions, (a perception the FOS intends the proposals to eliminate). The full decision reduces the risk of misinterpretation. In addition, the costs associated with summarising all decisions would also be prohibitive and would not constitute value for money.

5 However, insurers report a trend towards short form decisions with standardised paragraphs that often do not provide sufficient information to understand a ruling in a more complex case. It will be important that where decisions are published they contain an appropriate level of detail and follow a standard format. The FOS should also consider how they intend to contextualise the body of decisions. For example, providing explanation that each case is different and is treated on its own merits, that they are not intended to set precedent etc. 4. Overall do you think our proposed approach strikes the right balances between transparency, protecting genuinely confidential information and the costs of implementation? We do not agree that the proposed approach strikes the right balance. For the reasons already outlined above, publishing final decisions will not provide the proposed benefits to consumers or firms. Transparency and openness of decision making does not require the naming of any party to a dispute. We disagree that in many cases the identity of the financial business is central to the complaint. The published decision should determine the material facts that may or may not apply to one or more financial institution. The only purpose served by publishing firm identities is to name and shame. The consultation paper states that where they have upheld the customer complaint the reputational damage may be deserved. The FOS already publishes six-monthly complaint data which consumers can use as an independent way to assess organisations complaint handling. We believe that it is still possible to have a meaningful decision with the details of all parties redacted. This is already evidenced from the information the FOS already publishes. For example Ombudsman News case studies. We suggest that the FOS look into the proportion of cases that would be rendered incomprehensible if this information is removed. In cases where redaction would cause the meaning to be lost, the FOS could consider preparing a case study reflecting the circumstances of the findings. We agree that cost implications are an important consideration. Any costs must be proportionate to the benefits delivered. The costs in the consultation paper cover only the FOS administrative costs. However, we are aware that further work is being conducted on costs. A full cost benefit analysis should be produced and consulted upon with key stakeholders. Contrary to the view put forward in the consultation paper, we believe there is a risk that these proposals will increase costs for all businesses as the decision information is used by: Complains Management Companies (CMCs) to drive customer complaints vexatious complainants by proving them with materials to manufacture grounds for complaints other interested parties.

6 For example it may generate more complaints about Private Medical Insurance (PMI), driven by medical specialists with their own interest trying to establish a published precedent for a particular treatment to be covered under a PMI scheme We would welcome further information on how the costs will be financed. We believe any costs should be funded through efficiencies at the FOS rather than an increase in the levy or case fee. 5. Do you think the steps we propose are sufficient to protect consumer identities and personal information or are there other specific steps we should take? We agree that the steps are sufficient. However, the identity of the financial business should be protected also (See answer to question 4 & 6). 6. Do you agree that we should not seek to protect the identity of financial businesses? If you disagree, what other steps would you want us to take? See also the answer to question 4. The identity of financial businesses should not be published. The FOS operates as a dispute resolution service and settles complaints impartially, looking solely at the specific facts of the case. Accordingly, ombudsman decisions should also be viewed in this light and do not require the firm to be named. The process is not intended to be a public forum, a punishment or sanction. Alternative mechanisms are already in place to inform the consumer and industry of points of significance or poor practice. It is the role of the regulator to impose sanctions in cases of wrongdoing. Publishing firm names could lead to considerable reputational damage (even in cases where the outcome favours the firm). We believe that this consideration may deter firms from appealing an adjudicator s decision to an ombudsman, even if they regard the adjudicator s decision to be a poor one. This undermines the independent arbitrator role of the FOS. Naming and shaming may also lead to a change in the character of the dispute resolution process. It may be rendered more adversarial and costly as firms seek to protect themselves from unfair outcomes and generalised criticism arising from individual complaints. There is a risk that the publication of firm names will be used by CMCs to drive customer complaints, using the firm name to target customers, misrepresenting cases to consumers by selectively quoting decisions. 7. Do you agree with our planned approach to the identities of third parties including other financial businesses, professionals, other representatives and third-party businesses? In principle we believe that complainant, firm and third parties details should be removed. Third parties should be removed to avoid unfair negative publicity. This

7 approach may also result in third parties declining to assist with the provision of specialist advice or information during a claim and/or complaint. 8. Do you agree that we should reserve the right not to publish certain decisions or to exempt information in other exceptional circumstances? We agree that certain decisions should not be published. There must be a clear process in place for determining whether a decision is suitable for publication (including quality and consistency monitoring), and whether all potential confidential / commercially sensitive information has been removed. This process should be consulted on with key stakeholders and published externally. Prior to the publication of any decision, firms should be given the opportunity to review the decision to ensure that all commercially sensitive information has been redacted. The FOS should report the volumes of decisions being published, those not published and the reasons for non-publication. This will help to ensure that consumers and industry have confidence that there is no distortion of the picture of FOS decisions. 9. Are there other considerations about safeguarding personal information that are not covered in this paper and that we need to take into account? We have no further comments to add to those made in response to previous questions. 10. What impacts do you believe publication of decisions as we propose will have on consumers, financial businesses and on our service? In general, we welcome greater transparency on the way in which complaints are considered and decided by the ombudsman. However, the current proposals do not meet the objectives set out in the paper. Our response to earlier questions has outlined the impact of these proposals but we highlight some specific impacts as follows: We do not agree that consumers will have access to a full, accurate and balanced picture of the decisions reached by ombudsman through the proposals. In particular, we believe consumers will be better informed by the expansion of the current practice of publishing anonymised case studies, lead decisions on key issues and technical notes. We believe increasing consumer awareness of the ombudsman can be achieved through its current awareness and accessibility programmes and there are more cost effective ways to help the consumer understand the role of the ombudsman, how to pursue a valid complaint or understand whether a firm has investigated a complaint fairly. For firms, we expect that these proposals will increase costs in the following ways:

8 - Increased number of complaints and subsequent referral to the ombudsman as a result of CMCs driving complaints and an increase in vexatious complainants. - Increased case fees/levy as a result of increased ombudsman costs arising from the publication of final decisions. - Costs of analysing decisions and assessing whether there are broader implications. There is a risk that firms will suffer disproportionate reputational damage. 11. Do you agree with our approach to the timing of publication? If not, when should decisions be published and why? We do not agree with the proposed approach to the timing of publication. Many firms report that the flow of decisions from the FOS is often inconsistent and erratic. Providing seven days between date of decision and publication provides very little opportunity for the firm to correct any errors the FOS may have made when redacting. More importantly, if firms are named in the decision, there must be safeguards that allow a firm to challenge publication that it considers would be inappropriate. There must also be reasonable time between decision and publication to ensure the quality and consistency of decision making. We suggest a minimum of three months. Please also see our response to question Do you agree with our approach to the form of publication? We agree with the form of publication proposed. As mentioned earlier it will be important for there to be robust quality and consistency processes embedded in the publication process. We agree that it is sensible that decisions are made available on the website. Information must be clearly catalogued and accompanied by an advanced search facility (for example by product type). This will allow information to be more easily retrieved and analysed. 13. Do you have any comments on when we should start publication of decisions and what are your views on past decisions? Publication should only begin after the completion of the legislative process. Notwithstanding this timetable, the FOS should ensure that publication only commences following consultation on detailed, clear proposals, accompanied by a comprehensive impact assessment. FOS should continue to improve the resolution times for cases. We have concerns about the publication of decisions whilst waiting times remain as high as they are now. Insurers have noted some improvement in resolution time. However, it can still take two years or more for a final decision from an ombudsman, particularly for complex cases. Publication of such decisions may no longer be relevant as practices may have changed or products have been discontinued.

9 We agree with the FOS that there is no rationale for publishing past decisions. 14. Do you agree that we should adopt the same approach across all of our jurisdictions and specifically do you agree we should cover our voluntary jurisdiction in the same way as our compulsory (FSA/FCA) jurisdiction and our consumer-credit jurisdiction? We agree that there should be consistency in the approach adopted across jurisdictions.