The ABI’s Yvonne Braun says the FSA’s complaints league tables do not measure compliance fairly.
The insurance industry has made great strides in recent years to make sure it listens to and works with consumers to deliver the best possible service it can. During these economically tough times, that approach makes even more sense.
The industry believes that consumers need relevant and accurate information about products and businesses to stimulate a competitive and vibrant market. Transparency is a powerful tool in delivering this. Markets need the right information in the hands of consumers to work well and this is mostly delivered directly by companies.
There is a role for regulation in ensuring consistency and filling gaps in transparency. But such regulation needs to be proportionate. Publishing too much information can lead to confusion and cost for consumers and, in some cases, even lead to the wrong behaviour. More transparency does not automatically equate to better information for consumers.
The FSA’s recent paper, Transparency as a Regulatory Tool, unfortunately falls into this and other traps. It argues for more disclosure about firms where this helps to meet its statutory objectives. It proposes publishing firm-specific complaints data (information already provided to the FSA) such as the absolute number of complaints received, the absolute amount of redress paid, the percentage of complaints upheld and the time taken to deal with the complaint. According to the FSA, this would give consumers additional information to make better product and provider choices.
However, this proposal assumes published complaints data of different businesses is exactly comparable. But in reality firms use different interpretations of what constitutes a complaint. So users of the information would not actually be comparing like with like. Similarly, the level of complaints a company receives is related to the size of its operations, which means that publishing absolute numbers of complaints will be misleading. For example, it could appear that smaller firms treat their customers better, simply because they have fewer complaints than much larger competitors.
Comparing how long it takes firms to investigate complaints could penalise those businesses which have a thorough investigation process or deal with a disproportionately higher number of complex complaints (due to the type of insurance they sell). The other obvious weakness in listing such information is that complaints may relate to historical practices, which do not reflect an improvement in a firm’s performance.
In addition to these problems, there are fundamental concerns around the use of league tables and it leading to undesirable behaviour. School league tables are said to discourage students from taking harder subjects to improve overall pass rates. Police targets are said to have had a negative effect by causing police forces to focus on crimes which are publicly scrutinised. Complaints league tables would have a similar distorting effect.
“Any proposal to improve transparency by regulation must pass the key tests of whether it helps or hinders consumers, and whether it will have any unintended consequences.
Yvonne Braun, ABI
Any proposal to improve transparency by regulation must pass the key tests of whether it helps or hinders consumers, and whether it will have any unintended consequences. Only relevant and targeted information put into context will be of use to consumers.
We are constantly working with our members to make sure they are speaking to consumers about the way they work, especially in areas where there is disagreement or cause for complaints. For example, the ABI’s Customer Impact Scheme survey is part of the life industry’s commitment to improve customers’ experiences and to be held to account for performance. It is an extensive and unbiased measure of how well customers believe they are being treated.
The FSA has also proposed publishing the requirements it imposes on the licences it issues to firms on the grounds of effective deterrence. For example, if the FSA has concerns about a firm’s financial promotions, it could order the firm to vet them through a third party, and would then publish this fact. We are deeply concerned as publication of these requirements will amount to public censure without due process. The vetting process does not have checks and balances in place to ensure that a firm’s side of the case can be heard before such reputational damage is done. Rather, it is a quick process designed for supervision, not for enforcement-type public censure of a firm.
We believe that this proposal conflicts with more principles-based regulation which the FSA purports to champion. Principles-based regulation focuses on senior management responsibility rather than detailed rules. A regime where the FSA could publicly highlight a company’s failings, without the firm being able to defend itself, is bound to create a more legalistic, defensive relationship between regulators and businesses. This is not what we should be aiming for.
Consumers deserve the right information and data so they can make informed choices. We are committed to this and willing to work with the FSA to explore what might work in this area. The current proposals may win the FSA some easy headlines but will ultimately not be in the interests of consumers.
Yvonne Braun is assistant director of retail market regulation at the ABI.
The ABI’s customer impact surveys can be seen at www.customerimpact.org/main/survey.aspxx