The Association of British Insurers has urged its members to pay compensation direct to consumers despite the fact they may be dealing with a compensation claims management firm.
While there is nothing stopping life offices from making it clear they will not deal with third-party CMCs unless at the insistence of the customer, as Legal & General (L&G) has done, the ABI has taken its strongest line yet towards advising members to have no dealings with CMCs and advising policyholders to cease dealing with CMCs altogether where possible.
In a move supported by the Association of IFAs, the ABI claims it is keeping within the spirit of the Financial Services Authority’s guidelines on dealing with CMCs in the wake of mortgage endowment complaints, however, its interpretation of the guidelines could be considered a liberal interpretation of what the FSA might have intended.
In its own guidance on the subject of CMCs the regulator states: “Firms should take care to avoid inducing the consumer to breach his/her contract with a third party”.
But the ABI guidance says: “Firms may wish to draw to their policyholder’s attention the fact that a free complaints system exists which they can use,” while also stating firms “may wish to inform the policyholder of their contractual obligation to pay the CMC for their services.”
The ABI adds: “If a complainant has used such a third party, then the claims management company will have to bill the complainant for their services.”
Moreover, Chris Kenny, director of life and pensions at the ABI, says: “There is no need for consumers to resort to using a third party to pursue a complaint. A free process already exists within companies and then via the Financial Ombudsman Service (FOS) that is open to everyone with a valid complaint.
“Our research shows that more people are successful in their complaints if they go direct to companies than are those who use third-party complaints management firms.
“Claims management companies often take large chunks of the customers’ compensation as their fee – on average a quarter (and in some cases more). If compensation payments are eaten up to pay the fees of third party firms, then there will still clearly be a shortfall for the customer.”
CMCs have been the focus of a great deal of attention in the past couple of months with the government suggesting in the Summer it may regulate the firms under new rules being introduced as part of its Compensation Bill.
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From 6 April 2019