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Life Industry
Sunday, June 1, 2008
Better business

While there are a lot of grey areas over jurisdiction between the six ombudsmen officiating in the financial services sector, Finmark Trust says it also identified “incorrect referrals” where complaints from consumers were wrongly routed to another ombudsman. This observation is part of its comprehensive report, finalised November last year: Landscape for Consumer Recourse in South Africa’s Financial Services Sector.

One solution would be to amalgamate their role into one super ombud. They did that in the UK in 1999 when all eight ombudsmen there were brought under one office. It is not sure how well this has gone, but there are certainly cogent arguments against the idea. Brian Galgut, the Ombudsman for Long-term Insurance, in his 2007 Annual Report released in April, says the idea of a super ombud would be “destructive” of the value of voluntary schemes. “A single scheme would require legislation,” he points out, “and that would make it a statutory scheme,” leading to all the ills of bureaucracy, inflexibility, restricted access (as the office would be centrally situated, say, in Pretoria) and excessive work loads.
“A single ombud would also lose the ability to deal with cases without red tape,” he adds. Though there may be a case for a ‘single entry point’ — see below.
The accompanying story briefly describes the six ombudsmen we have in South Africa that deal with financial service matters.
The idea behind any ombud is to provide free recourse to consumers for the resolution of complaints. The framework might be legally-based but the method of determination is speedier and escapes the formality and rigidity of the court process by facilitating mediation, largely through correspondence.
Judge Galgut describes his procedure. “When a complaint is received at our office a copy is despatched right away to the insurer concerned, who is asked to respond within one month.”
The response may be sufficient to arrive at a ‘provisional determination’ which is then communicated to both sides. The parties now have the opportunity to ensure the ombudsman has not overlooked any pertinent point. The informal nature of this mediation is very effective and speeds up the process that could otherwise take months, even years through the courts. The Office’s reputation for a fair-minded, objective approach (it has been running successfully now for some 23 years) tends to drive a lot of issues to quick resolution without the need for a formal determination. An essential characteristic of the office is its ‘equity jurisdiction’ as opposed to ‘legal jurisdiction’, which means it can focus more on what’s ‘fair’ rather than determining on a purely legal basis. This was established through amendment to rule 1.2.4 in 1998 providing for ‘due weight (to be) accorded to considerations of equity.’
This approach – as distinct from that of a statutory ombud – speeds up the dispute resolution process. In fact, according to his latest report the office has been ‘catching up’. “Over the last three years the office has been able to finalise more full cases than it received.”
One trend that “is particularly disappointing, however” notes the Ombudsman, “is the rise to 10% in the number of so-termed ‘incompetent’ cases.”
If there is no reply within one month of sending the copy of the complaint to the insurer “we follow up with a reminder requiring a response within the week.”
Failure to respond either adequately or timeously before the cut-off date classes the case as ‘incompetent.’
What was more disturbing is that no less than 73% of incompetent cases in 2007 concerned just five life offices. One can only speculate the reasons, but it would suggest that a failure to respond is simply a repeat of the consumer’s initial experience: of a lack of communication or complainant’s handling skills.
One approach that might improve the situation is the decision to name insurers in determinations.
Judge Galgut is quick to point out that there is no intention to ‘name and shame’ but that the FSOS Council has requested the deletion of the confidentiality provision in clause 1.2.5 of the office’s rules. This is being finalised so that in future, in cases of rulings going against insurers, the office will be obliged to publish the determination with its reasons and at the same time to publish the identity of the insurer concerned. The identity of the consumer will, however, remain anonymous, except of course where the determination itself might make the complainant’s identity self-evident.
He adds that the reasoning of the FSOS is that it wants to work towards “greater transparency, bearing in mind the object of the Act….. “ and that “it would better achieve good corporate governance.” 
Interestingly, Judge Galgut says that a large proportion of complaints received during the year under review were not so much to do with disputes as such, but rather a breakdown in communication in dealing with them. The overall level of service was a distinct problem. He also found that inappropriate response to questions was also an issue.
The office is not there to “clean up the insurance industry,” or “to promote public confidence in it,” as its essential function is to try and resolve disputes. However it tries to see justice done on behalf of policyholders and so does share issues of concern with other bodies and takes part in motivating reform, both of voluntary codes and practices, and of the legislation. Mis-selling of equity linked annuities is a former case in point where the LOA agreed to incorporate in its Code of Conduct a Code on Living Annuities. A code of Good Practice on Complaints Resolution was another voluntary reform initiative. The ombudsman has also been consulted in connection with changes to legislation and the test for ‘non-disclosure’ as reworded by the Ombudsman, for example, was embodied in 2003 in the Long-Term Insurance Act. The office therefore encourages ways to address basic issues raised in complaints so that they may not be raised again.

A single entry point

Certainly the ombudsmen have been successful in their various roles, but everyone agrees there are gaps and there is room for improvement. The Finmark Trust report confirmed a number of issues that are well understood:
There is, amongst others:
• a lack of awareness about ombuds or lack of knowledge of which channel to use for the specific complaint;
• confusion and complexity surrounding the jurisdictional boundaries of the various ombuds;
• a risk of multiple referrals which are not tracked and consumers giving up;
• inability to access services due to communication issues;
• the lack of co-ordination between both statutory and recognised voluntary ombuds.

A middle course between voluntary ombudsmen (who should remain in place) and the statutory ombudsmen (who should become more flexible) would seem the best compromise. Essentially there could be a ‘single-entry point’ established that would route all calls concerning consumer complaints against the financial services industry.
The services of the four voluntary ombudsmen are bodies now officially recognised by The Financial Services Ombud Schemes Act 2004 (FSOS). This Act essentially provides a framework for co-operation between the statutory and voluntary ombudsmen. One proposal would therefore be for the Council (set up in terms of the FSOS) to operate a central call centre for this purpose. Since it is charged with overseeing co-operation it would make sense for it to take a hands-on-approach and manage the phone calls. Monitoring of the performance of the various ombudsmen and the identification of perceived gaps in the different services provided could be managed, amongst other matters such as regulation and reporting. A link with Treasury would add important feedback to the overall government legislative process.
Clearly the personnel would have to be well-qualified with at least a para-legal background.
But before all that happens, the voluntary ombudsmen will need to work more closely together. For example, in his report Judge Galgut notes that his office and those of the Ombudsman for Banking Services and the Credit Information Ombud share a centralised helpline set up the start of 2007. But that further, “It is unfortunate that the remaining ombudsman schemes have declined to join the helpline.”
He says, however, that his colleagues – the four voluntary ombudsmen – are in agreement with the idea of a single entry point and the matter is on their agenda for a meeting early June. Judge Galgut is chairman of the Association of Ombud Schemes of SA, to which all ombudsmen, not just those officiating in the financial services industry are members. “We’re hoping to co-operate more closely together and share information,” he adds, “and there are signs this will come about.”


As for the statistics, last year’s work load had dropped by 1 311 cases or by 15% compared to 2006.
“We received 7 923 complaints during 2007,” says Judge Galgut, “significantly less than the 9 234 cases received in 2006. This decrease broke the seven-year trend of increasing volumes.”
Of the cases finalised last year, 44% were resolved wholly or partially in favour of complainants, the same percentage as in 2006. The essential reason for the decline was improved investment returns delivered by the favourable stock market performance over the past three years.
“More than any other complaint category, complaints concerning maturity values, policy performance and surrender values have shown the steepest decline. A similar trend has been experienced by life insurers.”
Other reasons for the reduction in cases include:
• The introduction of the FAIS Ombudsman, who has jurisdiction over complaints relating to advice given from October 2004.
• The internal arbitrators at two of the biggest life companies now being firmly established, so fewer (first instance) complaints reach the Long-term Insurance Ombudsman.
• Many insurers have boosted their complaints handling staff and have streamlined their procedures, meaning more complaints are internally resolved to the satisfaction of the consumer.

Administrative problems made up 26% of cases received during 2007, with dissatisfaction with policy performance having shrunk to 7% as is to be expected when markets perform well.
Mis-selling complaints were down to 8%, because more of them fell within the jurisdiction of the FAIS Ombud and because investment performance has improved.
Since a substantial proportion of complaints received concern levels of service it must be clear that a major improvement in communication skills and quality of service would go a long way toward reducing the workload of the Office of the Ombudsman for Long-Term Insurance. And, for reduced workload read ‘increased consumer satisfaction’. Better business, better profits — surely that makes more sense? By Nigel Benetton

Copyright © Insurance Times and Investments® Vol:21.5 1st June, 2008
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