Distress, inconvenience and delays reasons for at least half of complaints about insurance upheld by FOS

A study conducted by Which?, which examined complaints made to the FOS over the last five years relating to motor, home, travel and pet insurance, found that distress and inconvenience to consumers were recorded in nearly two-thirds of complaints upheld by the Financial Ombudsman Service in 2023, with delays at a five-year high.

Which? used a large language model to examine the text of over 8,500 decisions relating to complaints, including the ombudsman’s reasoning for each complaint being upheld, focusing on instances where an ombudsman found that an insurer had caused unnecessary distress, inconvenience, or an unfair delay.

According to the study, in 2023, the FOS cited distress and inconvenience was caused to consumers 1,321 times, with this consumer harm appearing in 64% of upheld complaints. The FOS also found that insurers had caused unfair delays in 800 complaints, 38% of which were upheld. Which? suggests that the study revealed that the number and proportion of these instances of harm cited in upheld complaints were the highest since 2019.

The study is based on the use of data science to examine words in FOS cases; considering the inconsistencies of the FOS and variation between case handlers this not an exact science, as acknowledged by Which? in their annex on data analysis.

However, the large sample size examined does indicate a clear trend in consumer complaints and the decision by the FOS to uphold them. As distress and inconvenience was cited as a reason for upholding complaints in at least half of the upheld complaints relating to home, emergency, car, motorcycle, buildings and contents insurance, the study implies these factors had a significant impact on the ombudsman’s decision to uphold complaints.

Which? also claims that the study reveals consumers experiencing certain issues, in particular delays, are more likely to experience negative outcomes. Examining the ‘complaint issue’, which outlines the problem being raised by the customer and is assigned to each complaint by the FOS, Which? reported that more distress and inconvenience was caused in complaints related to delays in a claim than any other type.

The study noted that some providers caused higher levels of distress and inconvenience than others, with the FOS ruling that home emergency insurance providers had caused distress in almost three quarters (73%) of upheld complaints since 2019 and above average levels of delay. Delays were experienced most in buildings insurance, for which the FOS published the highest number of complaints in this period at 6,270 - an average of more than three per day.

The study follows a rise in 22% rise in complaints to the FOS about insurance between the last full year of data before the Covid pandemic (2019-20) and the latest year of data (2022-23). According to Which?, its study “ha[s] highlighted issues with how the sector is treating its customers”, and it puts forward a set of recommendations:

1. The FCA should ensure that its planned review of how swiftly insurance claims are handled covers wider issues with how firms handle claims, including how firms identify and respond to issues of potential vulnerability arising from the nature of the claim.
2. The FCA should undertake enforcement action against insurance firms that are persistently failing to meet its requirements to avoid causing foreseeable harm to customers and to handle claims fairly and timely. (This could take a while!)
3. The FOS should publish metrics on the reasons for complaints being upheld to improve visibility of issues affecting consumers.

Although the report is aimed at insurers, it is a useful resource for all firms to review and use to assess their current complaints handling processes. It is also useful for brokers helping customers with their claims, specifically in buildings insurance and home emergencies as the report found that there were delays and medical issues for travel insurance which compounded harm in already stressful situations.

As ever, firms should also consider the vulnerability of each customer, and section of this report may be useful for firms when assessing their Consumer Duty Management Information and writing their Consumer Duty Board Report.