The man in the middle – part II
In last month’s issue of ITIJ, David Kernek spoke to the UK’s travel insurance industry about some of the complaints it has surrounding the country’s Financial Ombudsman Service (FOS). Here, he talks to senior ombudsman Caroline Mitchell, who spells out the service’s approach and replies to its critics
First published in ITIJ 132, January 2012
In last month’s issue of ITIJ, David Kernek spoke to the UK’s travel insurance industry about some of the complaints it has surrounding the country’s Financial Ombudsman Service (FOS). Here, he talks to senior ombudsman Caroline Mitchell, who spells out the service’s approach and replies to its critics
Frontline staff – who are they, and what do they do?
‘There are about 100 staff in our consumer contact division, and like everyone employed here, they come from different backgrounds – some will have had an industry background and some won’t – but they all receive training in how to deal with the questions consumers have, and they have access to a huge amounts of material through our intranet. Last year, they dealt with 1.2 million inquiries – partly written and partly over the ‘phone. That covers the whole range of the things we do; but only 206,000 – about a fifth – became cases that had to be fully investigated. So, with the vast majority of inquiries from consumers, they are able to give advice to people over the ‘phone, or perhaps reassure them that whatever it is they think has gone wrong has actually been dealt with properly, or point them in a different direction, because a lot of people who come to us shouldn’t be coming to us at all, and in many cases they’ll say to consumers, yes, there seems to be something there that needs investigating, but you need to go back to the business first.’
Do too many fraudulent and frivolous complaints get past the gatekeepers?
‘Frontline people will deal with as much as they can, and they get training in whatever area of insurance they're going to be dealing with, but obviously it is a frontline role, and they are not trained to investigate. Our first line is exactly that – a first line, a gateway into us; the entry point for complaints. One of the points raised in last month’s ITIJ article was that we shouldn’t be looking at things that are ‘obviously’ frivolous and vexatious, but the answer to that is they’re not always obvious, and they do require investigation. If a business can make it very clear at the outset that [they have encountered] a fraudulent claim, for example, that there never was a policy in the first place, then we’ll treat it as such and we won’t be charging a case fee, but it really has got to be as clear cut as that.’
Should buyers beware?
‘Travel is one of those sorts of insurance that’s bought consequent upon something else, and it’s the something else that’s exciting. If you’re booking your holiday in the Seychelles or your weekend shopping trip to New York, all you really care about is that if you fall over and break your ankle, it’s not going to cost you millions … you’ve got medical cover, that’s all you care about, so it’s not something that’s always properly understood. It’s a very complicated product. I’m not sure it’s always true that the only thing people look at is the price, because I think a lot of people do look at the general scope of the cover they're getting, but they probably – I have to concede – won't necessarily read all of the small print that perhaps they ought to read.’
The FOS is criticised for saying travel policies should be brief but also specific when listing exclusions. What would you say about that?
'I can see that. This is an argument we hear across other areas of business, too. If a business has an investment offer, you can send out vast quantities of material that they say nobody ever reads, hence they introduced the one-page key facts document. These are complicated products, so they are obviously summarising the cover, but it's got to be made as accessible as possible. It's not impossible to get a message across without having to go into great lengthy legal passages.
‘When I read the comments in ITIJ’s first article, what made me laugh was the comment that phrases such as 'utmost good faith' were about perfectly simple and obviously basic concepts. I don't actually think that utmost good faith is a terribly simple concept for the man in the street who's booking his holiday in Spain … I really don't. It's not beyond the realms of possibility that somebody can put together a really good summary of the basic cover and include warnings and tell people what to look out for and what to be careful about. It can be done.
Businesses sometimes will say that we're the consumer's champion, and consumers will say we're business champions, so perhaps we're getting it about right
‘People don't understand insurance; they really don't. Forget about complicated things like utmost good faith, people don't understand it at all, so we get letters from people saying this happened, and it's not excluded, so it must be covered, which of course isn't how insurance works. Insurance says what it covers and then may exclude it, so you start off with people really not understanding at all how it all works. And then you can sometimes find terms and conditions, an exclusion for instance, which if taken to their natural conclusion would exclude all cover under the policy. I've seen them; they're there. We wouldn't think it was fair for a business to rely on that sort of thing, because they could pick and choose when they want to use it.
‘I ought to emphasise that we don't get huge numbers of travel insurance complaints, when you think how many holidays are taken. They account for 1.2 per cent of our workload. So whatever might upset some people, the rest of them are probably getting it right.’
Forty-four per cent of travel insurance complaints are upheld by the FOS, which industry critics say points to either a mismatch between underwriters' and the FOS’s view of what is fair, or insurers getting it wrong when dealing with claims. What would you say to this?
'Well yes, they do get it wrong sometimes. But what do they expect? Are they looking for a 100-per-cent success rate? That's never going to happen. I would have thought their record was good, given that our overall complaint uphold rate is 51 per cent. Most travel insurance complaints are about claims. There are some about sales, and they're usually about questions asked concerning existing medical conditions, but that's much better; that's improved a lot over the last couple of years.’
Case fees – can the burden be lightened? Should complainants pay a nominal fee to be refunded if they're successful? Would that deter vexatious complaints?
‘The case fee has been £500 for the past three years, and I don't think it's been proposed that it should go up next year. Companies have three free cases each year. We've consulted with the industry in the past about raising that to ten a year, but that was not what was wanted by those who responded to our consultation. Whether complainants should pay a fee to be refunded if their complaint is successful is a question that has popped up regularly ever since I started work with the Insurance Ombudsman Bureau (IOB) 27 years ago. My worry would be that it would be very expensive to collect money from consumers and pay it back, so there would be administrative costs, and that while it would never deter the sort of complainants who have been troubling the people quoted in your first article, it would deter people who have genuine complaints and who haven't got money.
‘The ombudsman model that goes across the country, and that is used globally, is essentially the same model the IOB created in 1981 when it was set up, and that involves it being free to the consumer. I honestly don't see very much likelihood of it changing. The IOB was an insurance industry idea, so they really were at the forefront of consumer protection. I don't know if they think they've created a monster, but I think they should be really proud of what they've done.’
Why aren't key cases – such as the volcanic ash cloud dispute – referred by the FOS to court?
‘Yes, the FOS is able to refer cases to the courts, and that's a useful thing for the industry if there are areas that are best dealt with as a test case by the courts, but in the ash cloud case you're talking about interpreting a contract, and we do interpret a contract in exactly the same way as a court would. It's what we do every day, it's what we've been doing for the last 30 years – interpreting ordinary retail insurance contracts – and it didn't seem to me that that was something that did need to go to court. Of course, the volcano decision is currently facing an application for judicial review. That's before the court now. But that's about the merits of the decision; it's about the way the FOS decision is made. And of course, there was a county court judgement where the court found similarly. The insurers could have appealed against that judgement, but they didn't.
The IOB was an insurance industry idea … I don't know if they think they've created a monster, but I think they should be really proud of what they've done.
‘The ash cloud affected ten million passenger journeys, so we were expecting to be absolutely swamped. But we weren't, because most insurers dealt with it at an early stage on an ex gratia payment basis because they felt it was the right thing to do, and they told us that. We had around 800 complaints relating to the ash cloud disruption; when you bear in mind that we're currently getting 2,500 PPI complaints a week, that puts it in perspective.’
Is it fair to criticise the FOS, as some have done, for putting the rights of insurers secondary to its search for the truth?
‘No, we have an inquisitorial remit because we are ombudsmen. I'm not apologising for it at all. In court, you listen to the case that's presented by both sides. What we do is go out and dig around until we find the truth. It's part of our role to provide a level playing field. A lot of companies might have deep pockets and lots of lawyers, whereas a consumer might not.’
One critic says the FOS should not be the consumer's champion, but a regulator ensuring quality of service. How do you feel about that comment?
‘The FSA is a regulator, as is the Office of Fair Trading. We're not a regulator, and we don't seek to be one. Neither are we a consumer champion, much to the distress of some consumers, some of whom tell us something and expect us to believe it and uphold their complaint without investigating it. What we're doing is levelling the playing field. Yes, businesses sometimes will say that we're the consumer's champion, and consumers will say we're business champions, so perhaps we're getting it about right and being impartial in the way we're required to be.’
How does the FOS work with the insurance industry?
‘We do most of our communication through the Association of British Insurers. I meet them regularly to discuss things, including travel. I've recently met the chief medical officers of insurance companies. We have a large programme of contacts at businesses at all sort of levels – from CEOs downwards. We have regular forums and seminars here, looking at specific areas of insurance, and next year we're aiming to have one on travel insurance.
‘There's also a lot of information here that is available to the industry. We have our technical advice desk. If a business isn't sure how an ombudsman might look at something, they can ring up and talk to staff there; they're all incredibly good, they really know their business. That's free to the industry. They can't give a final answer, of course, but people do find that a really valuable tool. There's also lots of information on our website, including a special section on travel insurance.’