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Make Your Mind Up Time

December 19, 2013

This year the Financial Ombudsman Service started to publish its final decisions and you can see them on its website. So how is this new process settling in, and what are the implications for the future?

When you get to the site you can search based on class of financial product and the one that interests us is “insurance (excluding PPI)”. You can drill down a bit further using a word search but there are no further categories to choose from eg income protection insurance or failure to disclose etc. When you get to each decision you usually hit words like “Mrs G complains that….” and the only way to find out about the decision is to download the pdf file. When you do there is no way to tell whether there are any important issues being raised beyond your own interpretation of the decision.

Published decisions have been common in many other areas of adjudication. I remember from a past existence the publication of social security appeals to the commissioner. There were three types of decisions. The first were just “decisions”. The second were “starred decisions” as they dealt with an issue (usually quite narrow) of some significance but there were often other factors involved. The third type were “reported decisions”. These were very significant. As case law built up it was translated into guidance by the adjudication authority. Sometimes decisions related to particular types of benefit eg pensions. Other times they related to common provisions which applied to all benefits – eg on failure to disclose. There is the regular FOS news, but speaking as a previous author of guidance to Social Security Adjudicators on misrepresentation and failure to disclose it is not in the same league.

In the interests of transparency the FOS should take advantage of the new system to adopt a similar approach. It will be of interest to companies, IFAs and of course the FCA.

This leads me to what happens if either party doesn’t like a final ombudsman decision? In the past the law on insurance was so far out of step with FOS practice that the remedy was often only a judicial review unless other legislation or case law applied. But now we have the Insurance Act which brings the legislation broadly in line with the way the FOS works. This brings the opportunity to bring appeals against FOS decisions into line with other adjudicators by setting up an equivalent of the Upper Tribunal Administrative Appeals Chamber. Appeals to it are decided by specialist judges who essentially put themselves in the place of the adjudicating authority.

If these measures were adopted I believe the reputation of the FOS would be considerable enhanced – and the charge of amateurism raised by some in the insurance industry would clearly hold no weight.

But ”it takes two to tango” – currently far too many cases that could have been dealt with by companies are going to the FOS and we regularly hear from the FOS that when they do get there the presentation of the facts and argument are poorly made. Also, making people go to the FOS was a way of putting them off going any further – hence the growth of the claims industry. The result is that around 20-40% of cases are decided in favour of the consumer. For PPI it has been over 90%. If insurers got their act together then maybe only 10% would be in favour of consumers. In the past that would worry the FOS (seen as a toothless watchdog) but if they increase their professionalism in the way I describe I suspect this problem would not arise.

(written by Richard Walsh; first published in Cover magazine, 18th November 2013. Click here for the full article)

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