From 1 April 2019 the Financial Ombudsman Service (“FOS”) significantly increases its reach: in addition to individuals and ‘micro-enterprises’, an estimated 210,000 SMEs will be able to seek redress from the FOS if they are dissatisfied with the service or advice of insurers (or other financial service firms).
The new qualifying criteria for companies to access the FOS’ services are (1) an annual turnover of under £6.5m and (2) either fewer than 50 employees or an annual balance sheet under £5m.
Also from 1 April, the FOS’ maximum compensation award will increase from £150,000 to £350,000 (for complaints made prior to 1 April 2019, the limit will rise to £160,000).
At the time of writing, insurers have just over two weeks left to amend the complaints information they provide to customers to reflect these changes.
Whilst it remains the case that insurers’ complaints procedures must be exhausted before a matter is referred to the FOS, the inclusion of SMEs within the FOS remit is expected to mean that insurers (and, we anticipate, professional indemnity insurers in particular) may need to engage with the FOS to a much greater extent than before. Once a policyholder accepts the FOS final decision on an issue, it is likely to be binding on insurers and brokers, as there is extremely limited scope available for challenging a FOS decision. The trend we have already identified of policyholders using complaints procedures rather than litigation or arbitration to resolve policy coverage issues seems set to continue.
The FCA hopes the changes will encourage insurers to improve their conduct, provide greater consumer protection levels and, ultimately, attract more business. It remains to be seen whether concerns about the fact the FOS is not bound to by legal precedent, and about its ability to deal with the increase in case numbers and complexity, are well-founded.
We can help with these changes. Keoghs’ expert team has wide experience of drafting complaints clauses, advising on disputes referred to the FOS and handling FOS referrals on behalf of insurers and other FCA-regulated clients.
For more information, please contact Sarah Naylor or Matthew Rogers
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