New complaints figures from The Financial Ombudsman Service have revealed that the year to March 2011 was its busiest ever. More than 1m people used the free service – which settles disputes between financial providers and customers – to make a complaint about banking or insurance services. Of these, around 200,000 took their complaint all the way to a formal procedure.
Most of the grievances last year related to the mis-selling of payment protection insurance (PPI), which has affected millions of bank customers in the UK. The ombudsman expects PPI to dominate its case load for the next few years, as the banks face a deluge of claims from unhappy customers who feel they were wrongly sold the controversial loan cover.
But there was also an increase in the number of complaints about other types of insurance – particularly where it was ‘bundled’ into the sale of an entirely different product.
“Complaints about add-on insurance policies stood out this year,” said Emma Parker, spokesperson for the ombudsman.
The number of inquiries about “specialist” insurance – which includes cover for mobile phones and identity theft – increased from 4,119 to 6,558 in 2010/11. Cases subsequently pursued rose by 66 per cent over the period, from 1,076 to 1,791.
Most complaints involved consumers questioning the value of the insurance, or the suitability of the policies sold to them – many of which they could not claim on.
Cases involving travel insurance increased by more than a quarter, from 2,000 to more than 2,500, and motor insurance complaints rose by 6 per cent.
Many travel claims related to the disruption caused by the volcanic ash cloud in 2010, which was not covered by all travel insurance policies. However, a growing number were connected to policies sold as part of a holiday or packaged bank account. Regulators have already expressed concerns that so-called ‘bolt-on’ insurance could be a waste of money for many consumers.
But the ombudsman was keen to point out that complaints made about other forms of insurance – such as critical illness and private medical cover – fell. The Association of British Insurers said it had worked with members over the year to improve the transparency of medical insurance products.
Even so, consumer group Which? said the overall increase in complaints was proof of a serious problem with complaints-handling in the financial services industry. “The fact that over 200,000 people a year are now having to refer their complaints to the Financial Ombudsman Service -– the last port of call – shows that banks and insurers are simply not taking complaints handling seriously enough,” said Richard Lloyd, executive director.
There has also been a rise in the proportion of complaints upheld concerning investment product sales. In many cases, consumers said they were unhappy with the way brokers and portfolio managers reacted to market conditions.
The Financial Times has previously reported on the number of novice investors with little appetite for risk who were sold so-called ‘cautious’ or ‘absolute return’ funds – without realising the extent to which they were putting their capital in danger. Many only realised the problem after these funds lost value in 2008.
Complaints upheld against providers of stockbroking and portfolio management services rose to 66 per cent in the year, while upheld complaints relating to investment bonds rose by 60 per cent.
More than half of all complaints to the ombudsman now relate to just four of the UK’s largest financial groups, which include the state-backed banks: Lloyds and RBS. Of all the cases brought to the ombudsman, around half were found in favour of the consumer.