Recent research by the Office of Fair Trading shows that poor products and services cost the public £6.6bn last year, or roughly the gross domestic product of Bolivia.
The study shows that three quarters of the damage relates to problems costing consumers £1,000 or more, with the financial services industry the worst offender. Bad experiences with financial services companies resulted in almost half the total loss.
This will come as no surprise to anyone who has had to deal with a UK insurance company or other fiancial services provider, whose service tends to be either awful, or very awful,even though financial institutions are required by the Financial Services Authority to show that they are treating customers fairly.
The OFT says it is keen for people to make more use of official channels of complaints about companies, after the survey showed that only a small minority of those surveyed had made a report through Trading standards or the OFT’s own Comsumer Direct Service.
In the case of financial services complaints, these would normally be referred to the Financial Ombudsman Service which received 627,814 initial enquiries in 2007, of which around one in six (94,392) became complaints and were formally assessed and resolved through mediation. 7 per cent of cases went to the Ombudsman for a binding decision.
Overall, roughly one third of complaints was upheld in favour of the consumer, a third involved the company having to make an apology or being criticised for some aspect of its service and in the remaining 33 per cent of cases, the FOS found that the company had acted correctly.
This means that in around two thirds of cases, the financial provider was found to be wanting to some degree, which is a worryingly high level, given that the industry has been told to pull its socks up and introduce management systems to ensure that customers are treated fairly.
However, FOS figures also show that 71 per cent of complaints involve banks and insurers, while only 12 per cent concern advisers.
In mystery shopping exercices, the FSA has found that many providers are still not taking TCF seriously, and there are almost daily reports of poor administration, particularly by insurers.
The latest involved Windsor Life which left thousands of cusomters without their pensions because its admin systems could not cope with a glut of business following its parent company’s takeover of GE Life (now called Tomorrow) last year.
Having inherited 400,000 new customers, it has received around 2,500 complaints to date, many of which involve delays in paying annuities to retirees who have recently retired. Because annuity rates change from week to week, a delay in finalising the paperwork can mean that the fund drops in value or the annuity rate has moved against the customer by the time payments commence.
With more and more people investing in defined contribution pensions which will require them to purchase an annuity through an insurer, this does not bode well for future generations of pensioners.
It’s time insurers got their act together. The number of annuitants is set to rise exponentially as the baby boomer generation comes up to retirement and millions of retirees will need to buy annuities.
Perhaps this is an area that the FOS should focus on in future - that’s when it’s finished with the thousands of PPI and mortgage endowment complaints, which continue to pre-occupy the bulk of its caseworkers at present.
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