As January 2005 looms ever closer there is an aspect of future regulation that is starting to draw attention in its own right.

The government decreed that consumers will have a legal right to refer disputes that remained unresolved, to an independent body, the Financial Ombudsman Service (FOS).

Anyone involved with life Insurance and investments will be only too aware of the FOS and the associated costs. In January 2005 the remit of the FOS will be extended to include general insurance.

And you don't have any option about joining. When you become authorised and receive your permissions you are automatically subject to the FOS's authority. I am afraid that it is all part of what I believe to be the increasing 'nanny' state, one in which the deck is apparently stacked in favour of the consumer. Let's be clear about a few things:

  • Those involved with general insurance can voluntarily opt to be part of the scheme up to the January 2005 deadline, after which time, general insurance will come under the auspices of the FOS, in respect of personal customers and businesses with a turnover up to £1m
  • The FOS doesn't make the rules and regulations. They are made by the FSA
  • The FOS service is provided free to all customers
  • Costs are funded by an annual levy together with an individual complaint-handling fee of £360 for every dispute that is referred and dealt with by the FOS
  • The cost of handling general insurance complaints for firms that voluntarily register with the FOS is £600 (until March 2004)
  • Decisions reached by the FOS are binding on firms, but not on the customer, who remains free to seek legal redress
  • The FOS is not bound by strict legal interpretation, but will take account of what it believes is "fair and reasonable" in the situation
  • The FOS received 462,000 inquiries from customers last year, of those 62,000 became complaints, of which 56,000 were ultimately settled.
  • So what may this mean for those of us involved in general insurance? If the number of complaints on the life side were to be replicated for general insurance and the current £600 fee were to be maintained, it would result in a total cost of £33.6m to the industry, although it is accepted that general complaint numbers should be considerably fewer, with the case fee probably being revised downward to reflect this.

    Insurers are fortunate in having a mechanism to pass their costs on, through the premiums they charge, whereas intermediaries do not. Therefore, yet more costs will fall squarely on the shoulders of the broking community.

    Also, if ultimately a complaint is found to be spurious, no right of redress exists against the customer for our costs. Indeed we are seemingly barred from taking such action.

    Also, an adequate mechanism should exist that will allow intermediaries to pass the costs back to the source of the problem, when it is found that the responsibility rests other than within their businesses.

    Given the increasingly litigious society in the UK and the culture of "where there is blame, there is a claim", we must guard against the temptation to pay a few hundred pounds to get rid of a potential complainant in order to avoid FOS involvement, as it could be seen as a route for the unscrupulous to simply extract money.

    Knowing all this, would you want to voluntarily join the FOS in advance of the January 2005 deadline? Certainly, I can see the argument for preparing well in advance, but I can see little advantage in doing so now. Time enough, I think, in January 2005.

    Grant Taylor is chief executive of Eastern Alliance