The Financial Ombudsman Service: 10 Things That Every Policyholder Needs to Know

Do you have a policy coverage dispute with your Insurer?

Are you a Consumer or Small Business?

Is your dispute worth £375,000 or less?

If the answer to these questions is Yes, the Financial Ombudsman Service might offer you a pathway to resolve. Please read on…

The Financial Ombudsman Service (FOS) is a free service that aims to settle disputes between Consumers or Small Businesses on one hand, and businesses that provide financial services (including insurance companies) on the other hand.

Here are our Top 10 Things that every Policyholder needs to know:

1. IS THERE A COST?

The FOS is a free service because it is funded by levies and case fees from businesses which are regulated by the Financial Conduct Authority (FCA). The legislation that gives the FOS its powers is The Financial Services and Markets Act 2000 (FSMA), which determined that the FOS should be funded by the businesses it covers, and that these businesses should meet the costs of resolving disputes. The FSMA does not contain any power to charge Consumers for using the FOS.

2. IS IT A LEGAL PROCESS?

The FOS is an informal and non-legal process, as an alternative to the Courts. There are no fixed timetables; no need for detailed legal arguments or any cross-examination; and no need for witness statements or expert evidence. The FOS aim to decide cases on a fair and reasonable, not necessarily a legal basis. Whilst they will be guided by the Law, they are not bound to follow it. Unlike a Court process, there is no risk of adverse cost if you lose.

3. CAN THE FOS HELP ME?

The FOS can assist with complaints from Consumers and Small Business Policyholders.

A Consumer is an individual who enters into a consumer, or personal, insurance contract.

A Small Business is:

• a ‘micro-enterprise’ with an annual turnover or balance sheet that does not exceed €2 million and fewer than ten employees
• a small or medium-sized enterprise (SME) with an annual turnover of no more than £6.5 million and fewer than 50 employees
• a charity with an annual income of less than £6.5 million
• a trust that has a net asset value of less than £5 million

4. WHEN CAN I COMPLAIN?

The FOS can only review a complaint once the Policyholder has exhausted their Insurer’s complaints procedure, and the Insurer has provided a “final response letter” in accordance with the FCA Handbook, rule DISP 1.6.2, which requires that the final response:

• rejects the complaint and gives reasons for doing so;
• encloses a copy of the Financial Ombudsman Service’s standard explanatory leaflet;
• provides the website address of the Financial Ombudsman Service;
• informs the complainant that if s/he remains dissatisfied with the respondent’s response, s/he may now refer their complaint to the Financial Ombudsman Service

5. IS THERE A FINANCIAL LIMIT?

The FOS has an award limit, which is the maximum amount the FOS can require an Insurer to pay when they uphold complaints. This limit is adjusted each year in line with inflation, as measured by the Consumer Prices Index (CPI).

From 1 April 2022, the award limits were updated and are currently:

• £375,000 for complaints referred to the FOS on or after 1 April 2022 about acts or omissions by firms on or after 1 April 2019
• £170,000 for complaints referred to the FOS on or after 1 April 2022 about acts or omissions by firms before 1 April 2019

The FOS aim to put Policyholders back in the position they would have been had the Insurer not made a mistake.

If the FOS upholds a complaint, it can ask an Insurer to pay compensation, ie a monetary award against the Insurer, and will often require the Insurer to pay interest on the award. The FOS also has the power to award costs against the Insurer, but this is rare and usually you cannot recover your own costs.

There may be cases where the FOS consider that compensation should be higher than their award limit. In those situations, the FOS can recommend that the Insurer pays more, but the FOS cannot force them to pay anything over the limit, and the Insurer can decide whether they pay any extra or not (although in practice we would expect them to do so, especially if it is a relatively notional amount).

6. THE PROCESS: STAGE ONE – INVESTIGATOR

The FOS is a two-stage process: (1) Investigator; and (2) Ombudsman.

At the first stage, an Investigator will review the complaint submission by the Policyholder, and the Insurer’s file. The Investigator will then share their initial assessment of the complaint with both sides and recommend how it could be resolved.

The Investigator’s assessment is not binding on either party.

If both sides agree with the Investigator’s assessment, the complaint is settled accordingly.

Either side can however reject the Investigator’s assessment, and request that the complaint is referred to an Ombudsman.

7. THE PROCESS: STAGE TWO – OMBUDSMAN

At the second stage, an Ombudsman will then look at all details of the complaint afresh, and make a final decision.

As part of this process the Ombudsman may decide to issue a provisional decision which will set out the decision s/he is minded to make on the complaint’s case. The Ombudsman will then give both parties a reasonable time in which to make any final representations. After this time the Ombudsman will consider any further submissions s/he receives before issuing a final decision on the case.

If the Policyholder accepts the Ombudsman’s final decision, it is binding on the Insurer, who has to accept the decision and follow the Ombudsman’s ruling. The Insurer does not have the same power and cannot compel the Policyholder to accept.

If the Policyholder does not wish to accept the Ombudsman’s final decision, they do not have to, but it does mean that the FOS involvement is concluded.

8. IS THERE A RIGHT OF APPEAL?

There is no right of appeal to another Ombudsman.

The FOS a public body and can be judicially reviewed. A judicial review usually focuses on the process an Ombudsman has used to make their decision, not on the facts and evidence of the dispute itself.

9. HOW LONG DOES IT TAKE?

The FOS aims to give answers to complaints within 90 days of receiving the complete complaint file, in line with the EU directive on Alternative Dispute Resolution (ADR).

The FOS currently has a large volume of cases and so it is taking them longer than usual at the moment. For any new complaints they are typically advising that it will be 4 months before they can allocate a Case Handler. As a broad guideline, first stage assessments are probably in the region of 6 months after submission of the complaint, and second stage decisions are probably an additional 3 months; but each case is very much dependent on its own facts, and we are aware of cases which are well over 12 months old and still ongoing.

10. CAN I FIND OTHER DECISIONS?

The FOS publishes Case Studies and Ombudsman’s decisions on their website. These are not precedents, nor a definitive statement of the law, the FOS approach, or their procedure. The FOS may refer to previous cases or decisions, although each case is still decided on its own particular facts and merits.

FENCHURCH ADVOCACY SERVICES

Fenchurch Advocacy Services offers Policyholders a cost-effective solution to refer complaints to the FOS on their behalf. This is a non-legal service, undertaken by an ACII qualified Chartered Insurance Practitioner, under the supervision of experienced solicitors from Fenchurch Law’s market leading insurance disputes team, and includes:

• Undertaking a review of the Policyholder’s case;
• Advising on prospects of success;
• Challenging the Insurer’s position (if there are good prospects of success) and obtaining a “final response letter”;
• Referring the case to the FOS, as appropriate.

FENCHURCH ADVOCACY SERVICES

Fenchurch Advocacy Services offers Policyholders a cost-effective solution to refer complaints to the FOS on their behalf. This is a non-legal service, undertaken by an ACII qualified Chartered Insurance Practitioner, under the supervision of experienced solicitors from Fenchurch Law’s market leading insurance disputes team, and includes:

• Undertaking a review of the Policyholder’s case;
• Advising on prospects of success;
• Challenging the Insurer’s position (if there are good prospects of success) and obtaining a “final response letter”;
• Referring the case to the FOS, as appropriate.

If you would like more information, please contact our Insurance Consultant Phil Taylor at phil.taylor@fenchurchlaw.co.uk