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The UK Government is implementing the EU’s Alternative Dispute Resolution (ADR) Directive with effect from 9th July 2015. In this article we look at what the new regulations require and how the FCA is responding. We also examine the property insurance industry’s performance in relation to complaints (the numbers of complaints are increasing), and question whether it is ready for ADR and the proposed FCA changes.
Are insurers ready?
In the year to 31st March 2015 the Financial Ombudsman received the following numbers of complaints:
|Insurance product||No. of complaints||% of total complaints|
|Property insurance as % of total non-life insurance*||18|
As property insurance accounts for 18% of total non-life insurance (measured by premiums) it would appear that property related insurance is registering more than its fair share of complaints at the Ombudsman. And the trend not good. Buildings insurance complaints have risen from 3,469 in 2011 to 4,510 in 2015 according to the Ombudsman.
So it looks like the property insurance industry needs to get on top of its complaints processes!
What is an ADR?
ADR is a process that enables disputes between a customer and supplier to be settled via an independent and impartial mechanism outside the court system. There are several different forms of ADR:
> Mediation or Conciliation. The mediator or conciliator willhelp the parties come to an agreement. Any decision is not binding and won’t prevent the customer from taking court action. If the customer disagrees with the opinion offered, he or she can then proceed to the arbitration stage or consider suing in court.
> Arbitration or Adjudication. An arbitrator or adjudicator will make a decision based on evidence submitted by both parties. The decisions of an adjudicator and an arbitrator are both binding on the parties and can be enforced through the court.
> Ombudsman. A customer can only refer the matter to the Ombudsman after he or she has completed the supplier’s internal complaints procedure. The Ombudsman will make a recommendation or a ruling which is usually accepted by the supplier, but isn’t legally binding. Hence the customer can still take court action if he or she isn’t satisfied with the decision. However, the court will take the Ombudsman’s ruling into account when deciding the claim. All the Ombudsman schemes are free.
The new regulations do not stipulate which type of ADR should be used.
The new regulations
The Government has decided not to completely rationalise the existing system and has decided not to impose a single consumer ombudsman. But it will continue to consult on rationalisation once the new Directive has been in place for a while. The changes are:
A new residual ADR scheme
Even though there are already over 70 ADR schemes operating in the UK, not all consumers in all sectors have access to a certified ADR scheme. As a result, the Government is implementing a “residual ADR scheme” which will be used where business are not obliged or committed to using another ADR scheme. Use of the residual scheme will not be compulsory, but will be available should both parties wish to use it. The Government will also set up a consumer complaints helpdesk to help consumers navigate the ADR landscape and signpost them to the appropriate ADR scheme(s).
Extension of the 6 year limitation period
The Government is amending the Limitation Act to extend the standard 6 year limitation period for bringing court proceedings (in disputes covered by the Directive) by a period of 8 weeks in cases where ADR is ongoing at the expiry of the 6 year period.
Competent authority to monitor ADR
TheTrading Standards Institute (TSI)will be the UK’s principal competent authority to monitor ADR providers in the non-regulated sectors. Organisations like the Financial Conduct Authority (FCA) and the Financial Ombudsman will be the competent authorities in the insurance and financial sectors.
Businesses information obligations
There are a number of new requirements for businesses including:
> Businesses that are legally obliged (or has voluntarily committed) to use a certified ADR provider to resolve disputes must provide information about that provider on their website and, if applicable, in their contractual terms.
> All businesses that sell goods or services online must provide on their website a link to the Online Dispute Resolution (ODR) platform (as must all websites that provide a platform for such sales). Further information about the ODR platform must be provided if the trader is obliged or committed to using ADR.
> In the event of an unresolved dispute, all businesses must provide to the consumer information about an appropriate certified ADR provider and must advise whether or not the business is prepared to use ADR in the dispute.
Advantages of ADR
The main advantages of ADR for business are:
> Customers with complaints must allow the supplier the chance to resolve the issue directly with the customer before approaching an ADR body. Only once the supplier has explored all avenues and reached an impasse with the customer can the ADR process commence. ADR therefore helps maintain good customer relations and avoids deadlocks and potential reputational damage.
> Disputes can take up valuable time and resources, in particular where a customer remains unhappy or does not understand their rights and responsibilities. Referring such issues to an ADR can free up customer care services and other resources to focus on more productive areas.
> Responding to a court driven process is likely to be slower and more costly than resolving through ADR. And the outcomes of ADR procedures are confidential, whereas court outcomes are public.
> Use of ADR demonstrates clear commitment to high quality customer service, and signals to the customer that the supplier places a high value on customer satisfaction.
> Consumer complaints which are not upheld or are rejected as spurious do not affect the reputation of the supplier since the result is the outcome of an impartial third party.
> Certified ADR processes help ensure fair and impartial outcomes. Although not a requirement of certification, ADR providers often offer feedback as part of the service they provide to suppliers. So, for example, where an ADR outcome supports a customer complaint, the process and decision can offer valuable insights and information to the supplier on customer behaviours and expectations, on how to improve on its services in the future, spot trends and enhance its offer in a competitive market.
> As ADR becomes more widespread, supplier participation in ADR will become an increasingly important factor for customers when considering their buying choices.
Impact on property insurers
Organisations like the Financial Conduct Authority (FCA) and the Financial Ombudsman will be the competent authorities in the insurance and financial sectors. As a result, the FCA and Financial Ombudsman have been reviewing their rules regarding ADR and ombudsman schemes to ensure compliance with the Directive. The FCA has already made changes to its Dispute Resolution: Complaints sourcebook (DISP) to deal with the new ADR Directive.
The key changes are:
> The Ombudsman service will be able to consider complaints where the firm has not itself investigated the complaint, but only if both the firm and the consumer consent.
> The current time limits in the rules will be preserved but the rules will allow firms to consent to the ombudsman service considering a complaint if it is referred outside the relevant time limits.
> The definition of an eligible complainant has been widened to include professional clients and eligible counterparties, where the person is an individual acting for purposes outside his trade, business, craft or profession.
Having read the above, you may think that the impact on the property insurance industry is minimal: the changes to DISP have been minimal after all. But complaint handling is high on the FCA’s agenda and, with the changes in Consumer Rights law due later this year, there is pressure for the insurance industry to change its ways (see our Discussion paper Schedules and Scoping).
In November 2014 the FCA carried out a thematic review of complaint handling (TR14/18) which focused on whether there are any barriers for firms in handling complaints effectively. The FCA found that:
> Firms should and could do more to deliver fair complaint handling and consistent outcomes. The FCA found weaknesses in each of the five key stages of a firm’s complaint handling (identifying a complaint; recording a complaint; internal reporting of a complaint; provision of redress; conducting a root cause analysis).
> There are barriers in firms that hinder effective complaint handling. These fell into four categories: application of the FCA’s rules in the Dispute Resolution: Complaints Sourcebook of the FCA Handbook (DISP), cultural barriers, operational barriers, and barriers relating to MI and RCA.
The review also highlighted the problems involved in household insurance where other parties such as loss adjusters and contractors are involved in a claim. The Ombudsman states “We hear from people who are frustrated at the amount of time and stress that seems to be involved in coordinating and chasing up work carried out by a range of third parties acting on insurers’ behalf”. “In some cases, the customers involved were as upset about the way their claim had been dealt with as they were about the incident itself”.
As a result of this thematic review the FCA is consulting on proposed changes and later in the summer it will issue a policy statement that is likely to ensure that:
> Firms will now have 3 working days to respond in writing to complaints rather than just one. The aim is to ensure that less serious complaints are dealt with effectively to reduce the numbers being sent to the more formal and lengthy process.
> Consumers can refer their complaint to the Ombudsman immediately after they receive a response, without having to wait for the current eight-week period to elapse.
> All complaints, including those resolved within 3 working days must be reported to the Ombudsman.
> Phone calls to insurers must be at a “basic rate” of call charges, i.e. no premium rate phone numbers.
This will have implications for the way insurers deal with complaints when they are first reported and insurers need to take this opportunity to sort out lower level complaints fairly and quickly. The number of less serious complaints will appear to increase as all such complaints now have to be reported (which will create reputational issues for some insurers in the eyes of the customer). But if the reported numbers also show that insurers are not dealing with less serious complaints fairly and effectively with the extra two workings days, then reputations will be damaged further. And, knowing the complex chain of supply, it seems unlikely that property insurers will manage to get complaints closed within 3 workings days!
Impact on contractors
Currently it is not a legal requirement for a building company to be part of an ADR scheme. Unless the contractor is a member of a reputable trade association, such as FMB or NICEIC, or a consumer standards organisation such as TrustMark, then the Government’s residual ADR scheme will apply.
As we mentioned above, use of this scheme is not compulsory and will only be available should both parties wish to use it. As a result there will still be plenty of dis-reputable building companies with unhappy customers who will have to resort to expensive legal processes to achieve any sort of redress for a complaint.
So for reputable and accredited contractors little will change, as the ADR schemes already in place should be compliant with the new ADR regulations without any significant upheaval. More customers may complain as a result of the publicity surrounding ADR and an increased awareness of the ease with which a dispute resolution service can be accessed.
Impact on customers
The new regulations are good news for customers. Customers already have an increased understanding of their consumer rights, but for many the means of redress are unclear, apparently too complicated and/or expensive and simply not available. For customers ADR is usually cheaper than court solutions, more flexible and faster, less stressful and the complaint details are confidential. As a result, all industries are likely to see the volume of complaints increase.
As always, dealing with a reputable business should usually ensure good customer service and complaints procedures. But even the best business can get it wrong, and if customers have clear information about the appropriate accredited ADR scheme much expense and stress can be saved for both parties.
MA Assist’s ADR scheme
As most property insurance claims involve multiple suppliers as well as the insurer, it is understandable that property insurers will struggle to resolve even the simpler new complaints within the FCA’s proposed 3 working days. To avoid complaints going to the Ombudsman, property insurers need to examine the complaints processes of their suppliers and their effectiveness, and should performance manage them accordingly.
As an accredited scheme operator for TrustMark, MA Assist has an accredited ADR process in place.
The RESOLVER process, managed by our Client Services team, is an ADR process; the RESOLVER staff mediate between the client, customer and contractor to find an effective solution for a complaint.
Like any other mediation or conciliation service the RESOLVER team requests evidence from all parties involved, considers the evidence and offers a solution. Unlike a mediation or conciliation service, the RESOLVER staff will carry out investigations and have the authority to make financial deductions from the contractor on behalf of the client and/or customer where necessary (subject to certain limits).
Backed up by a well-documented process, set out in our Complaints Handling Manual and the Supply Chain Management Manual, the RESOLVER team is able to resolve most low level complaints quickly. More complicated complaints may involve negotiations with the client, customer and contractor to find a satisfactory solution for all.
For 2015 so far, 95% of all of our Expressions of Dissatisfaction (EoDs) are resolved within 3 working days. 97% are resolved within 30 days.
Around 80% of our contractor network is accredited by TrustMark and so has access to ADR schemes, which are managed by the TrustMark scheme operators. MA Assist is an accredited TrustMark scheme operator, along with organisations such as FMB, NICEIC and FENSA.
TrustMark relies on its scheme operators to settle problems between registered firms and their customers and will not become involved in the substance of any dispute. But if the customer has taken a complaint to a scheme operator and feels it has not been handled properly according to the scheme operator’s stated procedures, the customer can refer the issue to TrustMark. TrustMark will investigate the way the complaint has been handled (not the original points in dispute) and the TrustMark Board will take action against the scheme operator if it finds a complaint has not been dealt with properly. The TrustMark website sets out clear information about what a customer should do if things go wrong at http://www.trustmark.org.uk/if-things-go-wrong/.
So insurers can rest assured that any one of their customers relying on a contractor from the MA Assist network has access to a tried and tested and accredited ADR process. And it’s a process that is resolving EoDs within 3 working days 95% of the time.
And contractors can feel reassured that they can participate in a fair and reasonable ADR process.
Net Promoter Score (NPS) is another indication of the way businesses deal with customers and their complaints. There are very few insurers and insurance agents/suppliers who measure NPS, never mind publish it.
MA Assist is very proud of the fact that it measures NPS and published it on its website.
Every month MA Assist and contractors’ NPS scores are WORLD CLASS!
*Marketline – Non-life insurance in the United Kingdom February 2015