The Financial Ombudsman Service recently published its latest statistics about the types of complaints received and upheld. PPI still tops the charts and there has also been coverage of increases in complaints in other areas, for example SIPPs. Many of these complaints are brought with the "assistance" of claims management companies who themselves will be regulated by the FCA by 1 April 2019. The growth in the claims management industry has been accelerated by the PPI mis-selling scandal and it is in the nature of the industry that it must constantly be looking for the 'next big thing'.
The recent super complaint by the Citizens' Advice Bureau about 'Excessive prices for disengaged customers' or 'loyalty penalties' in several sectors, including home insurance, and the FCA's subsequent announcement that it is embarking on a 'General Insurance market study' may provide clue to what will keep claims management firms in business for the foreseeable future.
'Engaged consumers' ie those who shop around for their key general insurance products on renewal each year, have long known that it often does not pay to stay with the same insurer year after year. Rather, when you use one of the many price comparison websites you will find that you can find a better price with a new insurer, with your existing provider seemingly not keen to compete on price to keep your business.
The Financial Ombudsman Service has already been making awards to consumers who have fallen victim to the loyalty penalty – numerous examples were provided in Issue 144 of Ombudsman News. It is important to note that whilst the 'loyalty penalty' may have more impact on the most vulnerable consumers, awards made by the Financial Ombudsman Service have also been made in cases where the consumer was not on the face of it particularly vulnerable – rather they just assumed that they would get a fair deal by renewing with their existing insurer but it was found that they were instead treated unfairly.
In a Dear CEO letter sent by the FCA sent to insurance firms involved in pricing, the FCA makes it clear that it expects those firms to look at their conduct in this area and also explicitly states that whilst the FCA is considering what action it may take in the future to address this issue, its requirements are not new, rather this is about the FCA requiring firms to meet its existing expectations. This has very clear echoes of the approach taken by the FCA in the case of SIPP providers and the FCA's expectations around due diligence on the firms that they deal with and the investments accepted into their SIPPs. Whilst there were no detailed rules on those issues at the time, the FCA's position is that firms nonetheless had clear duties to their customers under the FCA's principles and those firms can now be held to account for breaching those duties.
So is general insurance pricing the 'next big thing' for claims management companies and the financial services sector? It could well be. There are a number of options open to the FCA to address the issue. These range from requiring firms to proactively review cases (eg the pensions review or a redress scheme such as that imposed in the Arch cru cases) to the approach adopted in the case of endowments and PPI where firms had duties to make certain information available to consumers but ultimately it was up to the consumer to make a complaint. The latter approach is more likely and it is that approach which carves out a potential role for claims management companies in bringing complaints on behalf of consumers.
I would be surprised if claims management companies are not already drawing up plans to move into this market in a big way. The FCA plans to publish an interim report by mid-2019 and a final report, with a consultation on remedies if appropriate, by the end of 2019. This may dictate the size of the opportunity and in a best case scenario for the claims management companies, does a lot of the awareness raising for them. What will also be interesting is to see how this plays out alongside the FCA taking over the regulation of claims management companies. There are concerns that claims management companies can sometimes take a large portion of consumers redress, but on the flip side they would say that many consumers would not bring complaints without their assistance.
Over the course of the next 1-2 years, expect to see the complaints statistics change as this issue comes to the fore.