On the day the new FOS compensation limit kicks in, Simon Goryl considers how financial service firms can look to reduce complaints numbers and improve the effectiveness of their complaints management process
As of today (1 April), the maximum compensation award the Financial Ombudsman Service (FOS) can require firms to pay out has more than doubled, rising from £150,000 to £350,000. In addition, the number of small businesses that can now use the FOS service has also increased.
Historically, only consumers or businesses that meet the European Union's definition of a ‘micro-enterprise' have been able to raise FOS complaints cases - with the latter classified as businesses with up to 10 employees and an annual turnover of €2m (£1.72m) or less. Expanded eligibility now means businesses with up to 50 employees and a turnover of up to £6.5m will soon be able to raise cases - bringing an extra 210,000 businesses into the frame.
These changes could have a significant impact on financial service providers, with FOS cases likely to become more frequent and the number of high-compensation awards to rise.
Compounding this, the most recent complaints data published by the FOS revealed the number of cases resolved in favour of the consumer related to life, pensions and decumulation had increased by two percentage points compared to the first half of 2018 - the average FOS uphold rate for the latter half of last year being 24%. Although a relatively small increase, the impact for firms could be significant.
It should also be borne in mind that the £150,000 FOS limit has often been insufficient to cover pension complaints in particular, and the higher compensation awards could push up professional indemnity costs, adding further pressure.
Firms should therefore be actively working to reduce the number of complaints that are brought against them by customers, as well as looking at the effectiveness of the entire complaints management process, if they are to minimise the proportion that are escalated to the ombudsman.
Understanding the complaints landscape
In order to do this, businesses need to develop a thorough understanding of the type of complaints that are lodged by customers. This means identifying whether there are any specific products or services that are causing significant issues, along with any recurring complaint themes that suggest an ongoing problem needs addressing.
Analysing the complaints caseload effectively requires detailed management information (MI). Firms also need to have the right tools to carry out the root cause analysis that will identify whether there are systemic issues that need to be resolved.
Root cause analysis is really about getting ‘under the bonnet' of complaints data. It is not just about treating the symptoms of a problem but identifying what is causing that problem in the first place. In our experience, it is a vital piece of the puzzle in helping any organisation to develop a more effective approach to complaints management. Good root cause analysis helps fosters a culture where issues are identified before problems escalate.
All too often however, the sheer volume of information and evidence gathered from root cause analysis can mean businesses struggle to maximise their effectiveness. It is important, therefore, that senior management, experts and front-line staff are all engaged. Support at a senior level provides the backing needed to make necessary changes while those most familiar with the problem help to ensure a thorough understanding of the issues.
Working to reduce the number of FOS cases
Once the root cause analysis and MI are in place, a firm can then proceed to analyse its FOS caseload in detail. This will involve looking at what proportion of all customer complaints are escalated to the FOS, across which products and services, and what the final outcomes of FOS cases are.
It is then possible to benchmark a firm's performance against industry averages. Are a high proportion of complaints becoming FOS cases? Is FOS upholding a higher than average percentage of cases against your firm?
Every business will have its own perspective on what represents satisfactory levels - but every business will also want to be sure they are treating their customers appropriately and doing everything they can to reach fair outcomes. Key questions are therefore likely to include:
* Is the customer services team dealing with complaints fairly and compliantly?
* Is there anything that could be done differently?
* Where it has not been possible to resolve complaints at the first stage, are there any recurrent reasons behind this?
* In terms of FOS cases, how does your uphold rate compare with competitors? Are there any common issues that can be identified?
Learning from the data
To achieve meaningful improvements, businesses must be prepared to act on what their analysis tells them. This could mean investing in additional training for complaints-handling staff, improving MI data collection, a more thorough mapping of a typical complaints journey through the organisation, or a thorough benchmarking exercise of total complaints or FOS complaints compared with industry norms.
The FOS changes only make good practice even more important. Every organisation wants to deliver second-to-none customer service but it is just as important to ensure complaints are managed effectively to keep even the most disappointed customers satisfied when things do not go as expected.
Simon Goryl is sector lead of life, pensions and wealth at Huntswood
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