The Financial Ombudsman Service (FOS) is proposing to charge more for firms which generate more complaints as it seeks to embrace a “polluter pays” approach to its funding.
The regulator has also proposed to maintain its industry levy at the same level for a third consecutive year, recognising that the current economic environment was tough for businesses.
It is aiming to become more efficient in 2023/24 and aims to solve a similar volume of cases to this financial year but with a reduced budget of £240m compared to £252m.
The Compulsory Jurisdiction (CJ) levy will remain unchanged, as will the case fee of £750 per case, with no inflationary increase, but FOS said its case fee will “better reflect our ‘polluter pays’ and ‘cost reflective’ principles”.
FOS will offer three free cases for all businesses outside of group account fee arrangements but is removing free cases for businesses with group account fee arrangements – used by those firms which generate most complaints.
It is also changing the tolerance and charging structure to more accurately charge or credit group account firms who generate more or fewer cases than expected.
“Case fees will be based on the overall cost directly related to resolving cases, which vary with demand,” the FOS said.
“The reduction of free cases (which equates to a cost of £11,000 for each firm) and reduction in level of tolerance to group account firms better aligns with our polluter pays principle,” it added.
Insurance case causes
Overall, FOS is expecting to receive 183,000 complaints in 2023/24 – 11% more than the 165,263 it received in 2021/22 and 18% more than the 155,000 it expects to receive this financial year.
For the insurance sector, it anticipates receiving 38,050 – just slightly higher than the 37,700 projected for 2022/23, and below the 40,242 received last year.
The key drivers for this are expected to be:
- Rise of building and general insurance complaints, to pre‑pandemic levels
- Increase in insurance pricing complaints, following rule changes from the start of the year
- Rise in insurance claim complaints related to increased cost and supply issues for parts and labour for example in motor insurance
- Tendency for consumers to reduce the cost of their insurance premiums without realising the impact of the type or level of cover provided
- Rise in issues around misrepresentation and insurance fraud
Cost of living complaints
FOS also noted that it expected the cost of living crisis to have an impact on complaints volume, though it had yet to see this begin.
As a result it has already started working with the industry, particularly large banks and insurance companies, to understand their complaint forecasts.
It said it anticipated a lag in increased volumes, as there is a delay between when an issue or dispute first arises and when a complaint is referred to our service.
“We are mindful that customers are more likely to complain during times of financial uncertainty, such as the Covid‑19 pandemic. Factors exacerbate this, such as the growth of fraud and scams,” it said.
“At such times, customers and businesses are also less tolerant of loss, which can prolong the dispute resolution process.”
FOS chief executive and chief ombudsman Abby Thomas noted that over recent years, the body has generally run a deficit and needs to change its funding model.
“Under our transformation programme, we are making changes which drive cost efficiencies and change our funding model to ensure we recover our costs and are financially sustainable,” she said.
“However, we recognise the cost pressures on businesses and propose to freeze our levy and case fees at the same level as last year, which we hope will be welcomed by industry.”