With the implementation deadline for the new Consumer Duty regulations fast approaching, Insurance DataLab analyses the latest ombudsman complaints figures to see how the industry is performing
Insurers are facing a surge in complaint volumes from consumers, with the number of general insurance (GI) cases being referred to the Financial Ombudsman Service (FOS) rising by a third across the final quarter of 2022.
The ombudsman received more than 8,700 complaints over the last three months of 2022, according to the latest analysis by Insurance DataLab, as referrals reached their highest volumes since the second quarter of 2021 at the tail-end of a Covid-19 inspired spike in cases.
Car and motorcycle insurance remains the most complained about product of the last five years – the ombudsman received more than 55,250 motor-related complaints, accounting for around a third of all GI complaints it received.
This should not be a total surprise for the industry, however, with motor insurance accounting for some 26% of the UK market. This makes it the second biggest business line behind property insurance, which comprises 28% of market premiums itself.
However, the volume of complaints relating to car and motorcycle insurance have been on the rise in recent years.
The FOS received almost 3,800 motor complaints in the final three months of 2022 – this represented the culmination of three consecutive quarters of year-on-year increases and the highest quarterly complaints volume since the last quarter of 2018.
This also marks a 49% increase on the same period in 2021 as motor complaints volumes returned to higher pre-pandemic levels.
Buildings insurance was the second most complained about product line, accounting for some 16% of ombudsman complaints over the last five years as complaints volumes rose by 25% year-on-year to more than 1,350 for Q4 2022.
Other product lines receiving large volumes of complaints included travel insurance (12% of total complaints over the last five years), home emergency insurance (7%) and home insurance (5%).
No other product line accounted for more than 5% of complaints over the last five years.
When it comes to upheld rates – the proportion of complaints cases the FOS finds in favour of the customer on – car and motorcycle insurance performs better than the industry average, despite being the most complained about product line.
The FOS found in favour of the customer in 26.7% of motor-related complaints, compared to an average of 30.0% across all business lines.
This figure has been on the rise, however, with 28.8% of car and motorcycle complaints found in favour of the customer over the fourth quarter of 2022 – the highest level since the final quarter of 2018.
Of the other most complained about business lines, home emergency insurance had the highest upheld rate, with 38.5% of complaints found in favour of the customer over the last five years.
This figure stood at 39.0% in the final quarter of 2022 and although this is higher than the previous three quarters, it is still a three percentage point improvement on the 42.0% upheld rate for Q4 2021.
Travel insurance and buildings insurance also had upheld rates above the industry average, with upheld rates of 35.7% and 33.4% respectively over the course of the last five years.
Home insurance, meanwhile, had just 26.8% of complaints upheld in favour of the customer.
Across the wider market, however, it was special event insurance that saw the highest proportion of complaints upheld in favour of the customer.
Indeed, the ombudsman upheld some 53.3% of all cases in favour of the customer – some 23.3 percentage points above the industry average.
Special event insurance was also the only product line that had more than half of all complaints found in favour of the customer, with a spike in upheld rates over the course of 2020 and 2021 driving up the overall average.
The upheld rate peaked at an astonishing 93.8% over the first three months of 2021 and although this has since fallen back to 45.5% over the final quarter of 2022, the figure will still be a concern for the insurance industry.
Household warranties had the second highest upheld rate of the last five years, with some 43.9% of complaints upheld in favour of the customer.
This figure has, however, improved greatly in recent months – falling by 12 percentage points to 33.0% for the final quarter of 2022.
This makes it the second most improved product line of the last 12 months behind special event insurance.
Meanwhile, personal accident insurance has the best upheld rate of the last five years, with just 12.1% of cases upheld in favour of the customer.
Private medical and dental insurance was the only other product line to have less than a fifth of complaints found in favour of the customer, with the ombudsman upholding just 17.5% of cases in favour of the customer.
Despite improvements across a number of lines, the overall upheld rate has been on the increase in recent months, climbing to 30.7% for the final quarter of 2022.
This is 1.4 percentage points higher than the same period a year earlier and marks the highest quarterly rate since the second quarter of 2021.
This will be of concern to the industry, particularly given the intense regulatory spotlight on the industry as insurers grapple with Consumer Duty ahead of the July 31 implementation deadline.
Indeed, the regulator has already highlighted complaints handling data as one area insurers should be looking at when analysing customer outcomes as part of their Consumer Duty monitoring.
But where does the industry need to make improvements?
To help answer this question, Insurance DataLab analysed the types of complaints being referred to the ombudsman to find out where the problem areas lie.
Unsurprisingly, claims accounted for more than three quarters of complaints referred to the FOS over the last five years, with the ombudsman receiving almost 67,500 claims-related complaints.
Meanwhile, admin complaints accounted for 20.1% of total complaints and just 2.6% of those related to sales and advice.
This is a worrying statistic for the insurance industry and a sign of the sizeable expectation gap that exists between what consumers believe is covered under a policy and what is actually protected under a policy’s wording.
To help combat this, insurers need to do more to ensure that their customers fully understand their policies at the point of quote.
It may seem counter-intuitive, but one way to achieve this is to slow down the quote process in order to take the time needed to properly explain any limits or exclusions.
There is some good news for the industry on the claims front, however, with the proportion of Q4 2022 complaints relating to the claims process falling to the lowest level of the last five years.
Of the complaints cases closed by the ombudsman over the final quarter of 2022, some 68.5% related to the claims process, down from 77.0% for the same period a year earlier.
There are also a number of insurance companies that are outperforming the market, particularly when it comes to upheld rates.
Of those insurance companies to receive more than 100 complaints over the course of 2022, the lowest upheld rate was achieved by Pinnacle Insurance, with just 10.5% of complaints upheld by the ombudsman.
Other top performers include Axa PPP Healthcare (11.6%), Bupa Insurance (12.1%), AA Insurance Services (13.1%), Vitality Health (19.3%) and Budget Insurance Services (19.8%) – no other insurance company had an upheld rate of less than 20% for 2022.
At the other end of the scale, the highest upheld rate stood at a worrying 48.1%, with a total of five insurance companies having more than two fifths of complaints upheld in favour of the customer by the ombudsman over the course of 2022.