The Financial Ombudsman Service put its best foot forward when meeting MPs yesterday at the All Party Parliamentary Group on Insurance & Financial Services.

Facing questions about how it was handling two major scandals, Natalie Ceeney, chief ombudsman, and principal ombudsman Tony Boorman did their best to reassure MPs that their processes were fair and fit for the purpose even if their resources were stretched by the huge volume of complaints. Ms Ceeney said that FOS expected to resolve 200,000 complaints this year but that new complaints were expected to reach around one million, mainly driven by the 3000% increase in complaints about the mis-selling of payment protection insurance (PPI).

The prime responsibility for the resolution of the PPI scandal lies with the firms, said Ms Ceeney, with most of them expecting that it will take another 2-3 years to work through the complaints and review their back books of business in conjunction with the Financial Services Authority. Only after that will the volume that require adjudication by FOS become clear. The FOS will be issuing guidance soon on what it considers to be fair compensation for mis-sold PPI policies, partially to head-off many potential referrals to itself.
 
Arch Cru looms large
With half of the cases that FOS has dealt with in its entire history down to what Ms Ceeney described as "mass detriment" (mis-selling to you and I) it is clearly working hard to ensure that proportion does not rise as a result of the debacle over the Arch Cru funds. Mr Boorman said that it had already dealt with 150 complaints since the funds were suspended in March 2009, although he was warned by Alun Cairns (Con, Vale of Glamorgan) that this could leap as there were 20,000 investors caught up in the collapse. Mr Cairns appealed for an industry-wide approach to simplify and speed-up the compensation process especially now Capita, which acted as authorised corporate director for the funds, has put a £54m "no prejudice" offer on the table.

Mr Boorman set out how FOS was approaching the problem, explaining that the individual circumstances were often complex with the need to unravel how much of the investor's loss was down to bad advice on the part of an IFA (for FOS to deal with) and how much was down to everything else that was going wrong (what the Capita fund is for). Mr Cairns said that MPs who have set up a special all party group to investigate the Arch Cru affair were still pressing the FSA "to bring together all parties so that we can avoid thousands of complaints going to the financial ombudsman".

Looking beyond these immediate problems, Ms Ceeney said she welcomed the provisions in the draft Financial Services Bill to give the new regulators the power to intervene earlier in potential scandals which she felt could nip future mis-selling crises in the bud. She also felt that the proposals to allow organisations much wider scope to submit "super-complaints" to regulators (already extended by the recent Enterprise Act) would be helpful.

Whether FOS continues to cope - just about - with the huge volume of complaints does seem to depend largely on the ability to create broad guidelines in these "mass-detriment" scandals and get them to stick. With PPI this will rest on the banks being prepared to accept the guidance on compensation FOS told MPs it will be producing soon. This really has to be a wait and see exercise after the banks ill-judged decision to fight the FSA in the courts and their subsequent climbdown. I hope commonsense prevails.

Similarly, with Arch Cru. Accepting what Tony Boorman says about the potential for individual complexities, especially where bad advice from an IFA is a key factor, it should be possible to drive through a scheme that deals with the majority of cases quickly and effectively.

   

The reaction of the major banks to the High Court ruling before Easter that they must pay-up for their part in the widespread mis-selling of payment protection insurance says much for their current collective state of mind. It reinforces the common public perception that "the banks just don't get it", by which people generally mean just how low in public esteem these once highly respected institutions have fallen and how their every action seems to determined to lower it further. They appear to be in a very deep hole and relentlessly keep digging regardless of the consequences.

Hiscox boss Bronek Masojada has this morning called for the Association of British Insurers to be broken up so that the general insurance sector can independently argue its case with government and the public. He is wrong on several counts.

I have been around long enough to remember the days before the ABI was formed in the late-1980s by the merger of a wide range of trade associations, principally the Life Offices Association and the British Insurance Association, the latter which represented the general insurance market. The reasons were simple. The insurance industry's voice was not being heard by government, other relevant industries or the public, most of whom do not understand the differences between long term insurance and general insurance. Forming the ABI gave the industry a fighting chance of getting its message across and it has largely been a successful exercise on that count despite never achieving a real single voice as Lloyd's and the London Market have always stood outside. This still deprives the insurance industry of the clout that, say, the bankers and travel industry have through their more unified trade associations.

Unusually for Mr Masojada the main thrust of his argument is flawed too. He complains that the recent scandals over the miss-selling of payment protection insurance are a banking problem, not an insurance problem. True, the banks were hugely negligent in the way they sold PPI but you cannot escape from the simple fact that it is a general insurance product, underwritten by general insurers and marketed to the banks by general insurers. Much the same applies to the other class of business that gives rise to a significant proportion of consumer complaints - travel insurance. The complaints are often about the way it has been sold by travel agents but there is no escaping the culpability of the general insurers who underwrite those policies, dictate the premiums, the policy restrictions and agree the absurdly high commissions that create the incentives for miss-selling.

Forming a separate trade association will do nothing to deflect the criticism of this miss-selling away from the insurance industry and nor should it.

I could go on about the many areas where the cross-class work of the ABI bears dividends, such as building up relationships with key ministers and civil servants, representing the UK industry in key international debates about regulation, fighting fraud and so but I am sure others will make those points better and with plenty of evidence at their fingertips.

I can guarantee other trade associations representing sectors competing with, even sometimes in conflict with, the insurance industry will be quietly rubbing their hands in glee this afternoon at the thought of the ABI being broken up.

The news that Barclays has had the front to push ahead with its challenge to the Competition Commission's seven day ban on selling payment protection insurance alongside a loan or a credit card astounded me. I think this is real proof that the culture of the major banks is stubbornly stuck in a discredited past.