Consumer Duty has placed a greater spotlight on complaints data, however findings for UKGI show that ‘more than a third of cases’ are being overturned by the ombudsman

The FCA’s Consumer Duty regulation, which came into force from July 2023, has put an even greater emphasis on insurers ensuring good outcomes for their customers.

However, exclusive analysis of Financial Ombudsman Service (FOS) complaint figures by market intelligence business Insurance DataLab instead revealed a gloomy picture of industry performance.

Indeed, the number of complaints being referred to the FOS about general insurance products has increased by more than 25% over the five years to the end of September 2023, with the rate of this increase growing in recent months.

This situation is set to worsen over the coming year. Abby Thomas, chief executive and chief ombudsman of the FOS, confirmed that the ombudsman is expecting a surge in complaints volumes in the next financial year.

She said: “In the year ahead, it’s likely that our service will see increasing levels of complaints, with many of those disputes expected to focus on the critical issues that impact people’s everyday lives.

“The FOS continues to make significant improvements in the service we offer, getting customers decisions more quickly, while maintaining the high quality of our work.”

The FOS has committed to resolving 17% more cases in 2024/25 than in the current year. But, with insurance cases climbing by more than 30% in the 12 months to the end of September 2023, it remains to be seen if this will be enough to resolve the long-standing delays that have dogged the ombudsman in recent months.

Thomas, however, remained confident that improvements are coming.

“We will be even more ambitious next year, with plans to resolve complaints faster, while also reducing the cost of our service to businesses,” she added.

“With uncertainty around casework levels in the year ahead, we’re building a service which is flexible and agile, allowing us to respond to increased demand across any area of our business.

“Our plans will help ensure that the customer is at the heart of everything we do. We want every person who engages with our service to clearly understand the outcome of their case.”

Problematic products

Motor insurance continues to be the most complained about product line in UKGI – representing one-third of all insurance complaints referred to the ombudsman over the last five years.

Worryingly for motor insurers, this proportion of overall UKGI complaints has been climbing too, with the business line accounting for almost two-fifths of complaints in Q3 2023.

The FOS received more than 4,000 motor insurance-related complaints over the course of 2023’s third quarter – the highest level of complaints for more than five years and an increase of more than a third on the same period a year earlier.

This makes motor insurance the second fastest growing business line for complaints behind personal accident insurance, which saw complaints volumes rise by 69%.

Motor complaints were more than double any other business line. The second most complained about business line – buildings insurance – received around 1,600 complaints in Q3 2023, equal to 16% of all complaints.

Over the last five years, however, it is commercial lines products that have seen the biggest increase in cases referred to the ombudsman, with complaints about business protection insurance rising by more than 180% and commercial property complaints rising by 575%.

The nature of the ombudsman’s remit, however, means that these commercial business lines still only account for a small number of overall complaints – around 2.5% each over the last five years.

Across all business lines, the majority of complaints relate to the claims experience – accounting for more than two-thirds of all complaints over the five years to the end of September 2023.

Admin-related complaints, meanwhile, accounted for 28% of total complaints over that period, while sales and advice caused just 4% of complaints.

Upheld rate concerns

While complaint volumes are a useful metric for assessing complaints performance, the upheld rate – or the proportion of complaints for which the FOS agreed that the insurer has got their decision wrong – is arguably the most important measure of performance.

And it is here that this analysis gets particularly worrying for the insurance industry.

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All five of the most complained about business lines had an upheld rate in excess of 30% for Q3 2023 – excepting home insurance, these lines of business had more than a third of complaints upheld by the FOS in favour of the customer.

Home emergency insurance was the worst performing product – not only across these five business lines, but across the whole of UKGI. The product had 46% of complaints upheld by the ombudsman, with the rate rising in each of the last five quarters.

In total, there were four business lines that had upheld rates in excess of 40%, with travel insurance (44%), building warranties and roadside assistance (both 43%) joining home emergency insurance on the list of worst performing business lines.

The average upheld rate across all business lines – calculated as a simple unweighted average of the individual business line upheld rates – also stood above 33% in each of the last three quarters, peaking at 36% in Q1 2023.

Insurance DataLab co-founder Dan King said this is a particularly worrying statistic for insurers.

He warned that the insurance industry must do more to improve the user experience across the whole of the insurance value chain – this has become even more important in the current regulatory landscape.

“The regulator is looking much more closely at complaints figures since the introduction of Consumer Duty,” he explained.

“I would not be surprised to see some form of regulatory action later this year for those outliers the FCA finds to be facing unreasonable levels of complaints while also making the wrong decisions as part of their internal complaints process.

“Complaints handling – and particularly upheld rates – are a great indicator of insurer performance under Consumer Duty and, in many business lines, this analysis has exposed just how often insurers are getting it wrong.

“It’s hard to argue that the customer is being treated fairly when the ombudsman is overturning more than a third of cases.”