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Complaints-led regulation of general insurance – FOS' increasing role

06 January 2014

The nature of annual insurance policies makes the GI market ripe for complaints-led regulation.

Investment mis-selling is revealed by market losses.  Insurance mis-selling tends to come to light through complaints about claims handling.  The FOS will therefore play an increasingly important role.

The FOS was first to identify the emerging PPI scandal and has recently boasted about its role in the FCA's thematic review into mobile phone insurance (MPI).  As insurers start seeing their FOS decisions published and prepare for the findings of the thematic review into complaints handling next year, they need to prepare for increasingly complaints-led conduct regulation.

The FOS constantly reiterates that it is not the regulator; it states that its role is to resolve individual disputes as a quicker and more informal alternative to the courts. It does, however, state that its role is aligned with the FCA's objectives and that, because it considers such a vast number of complaints, it can identify widespread issues.

Since January 2013, the FOS has had a duty under s. 232A of FSMA to disclose information to the FCA that it considers would or might be of assistance to the FCA in advancing one or more of its brief but far-reaching operational objectives.

Under s. 234D of FSMA, the FOS may make a reference to the FCA – a 'super complaint' – where there appears to be a regular failure by one or more regulated persons to comply with the regulatory requirements applicable to carrying on a particular activity.

The FOS said in April that it looked forward to working closely with the FCA as it implements its new approach to regulation. However, cooperation under the terms of MoUs has been a constant. In September 2013 issue of 'Ombudsman News' the ex-Chief Executive, Natalie Ceeney, stated that FOS had already been in contact with 'Martin Wheatley and people in his team' for the last 18 months – dating back to March 2012.   Of course, the FOS reporting to regulators is nothing new; it notified the FSA about rising numbers of PPI complaints. But the FSA's failure to react quickly enough to the unfolding PPI scandal has spurred FOS to try harder next time.  In the latest 'Ombudsman News' the lead Ombudsman, Caroline Mitchell, says that FOS intervention has brought about wider change "quite a few times". The specific example cited concerns complaints involving MPI. She states that, in spring 2012, the FOS' uphold rate on MPI complaints was running at approximately 90%. The FOS dedicated a team of adjudicators to MPI complaints. Lead decisions "involving big players in the market" were issued along with batches of decisions involving similar issues. The FOS got in touch with the FCA and the ABI to voice its concerns.

Given that the FOS deals with a large number of consumer complaints, and its resultant ability to identify industry trends, it seems sensible for it to bring certain issues to the FCA's attention. But how far will this collaboration go? Will future regulation be increasingly complaints-led?

On the one hand, the FOS states it is not the regulator and its role is to assess individual disputes, quickly and informally. (We await the Court of Appeal's commentary on the public policy drivers behind FOS' role). On the other, the FOS puts dedicated teams of adjudicators together to assess complaints on particular issues, issues 'lead decisions' (which inevitably have precedent value within the FOS and would explicitly form precedents once published) and closely collaborates with relevant regulators. Now that provisions in FSMA explicitly allow (and indeed encourage) the FOS to share information with the FCA, we can expect more complaints-led regulation.