Big Interview: Rachel Lam, ombudsman director, FOS

Rachel Lam had been at the Financial Ombudsman Service for more than a decade when she took on the role ombudsman director for insurance at the start of 2023.

After a few years of Covid causing wings to be clipped due to international travel restrictions plus orders to stay at home to protect the NHS keeping cars on driveways, she picked up the baton of leading the insurance ombudsmen at a busy time.

As the world was open for business again, claims volumes and therefore the workload of the ombudsman surged again.

Far from lamenting picking up the reins at such a busy point, the mother of two young children’s eyes light up when she talks about her role at the top of the ombudsman’s insurance division. She says: “Leadership is wonderful. It is an honour to lead such a large team.”

Her team consists of six ombudsman leaders focused on different areas such as pet, property, motor, and so on, who run units made-up of ombudsmen who make decisions plus investigators who examine cases.

Looking back at how busy her first year in charge has been, she says: “We’ve definitely seen an increase in the volume of insurance complaints in the last year or so and an increase in the uphold rate too.

“On volume it is across a range of lines, but property and motor significantly. 

“The main drivers have been the cost-of-living – it matters more to people because premiums are higher, and people are more aware of the value of the product, and they have less disposable income so when something goes wrong there is more of a propensity to claim.

“Since Covid there have also been a number of macro issues, things like claim delays in particular in motor and property [due to] things like accessing materials and repairs. 

“We have seen complaints as people don’t understand why it has taken three months rather than two weeks to fix a vehicle.

“Consumers are just not aware [of supply chain issues] and are wondering ‘Why is that [delay happening]?’ We see the impact on them.”

Sharing lessons

At the start of her second year in charge, Lam is getting out and about to events such as today’s Association of British Insurers annual conference in a bid to help providers see how they can reduce the number of complaints that end up with the ombudsman service.

Picking through cases, she says she wants the industry to up its game in communicating with consumers at the point of claim and as well as speaking at today’s ABI conference she regularly meets with the trade body to discuss how to better manage policyholder expectations.

“Around claim delay, we have been talking to them [the ABI] for the last year and sharing what we see,” she says.

“It is a communication issue and where we see specific examples, and how they can address those issues, we share those.”

As well as highlighting examples of poor practice with the industry, Lam shares some of the complaints trends the ombudsman has raised with the Financial Conduct Authority in the last year.

“About a year-and-a-half ago, we were starting to see an uptick in complaints about vehicle valuation and so we did a deep dive, looking through files, to understand what we were seeing,” she says.

“That identified that valuations were not necessarily fair value, and one reason we heard [for that] when we spoke to insurers where we were seeing this across their complaints was the macro issues in the second-hand car market. 

“We worked with insurers about that and have really tightened up our approach to that.

“Another thing we saw is even if they [the provider] had reached a fair value, the journey that the consumer had been on was almost like a negotiation. That is fine for an engaged consumer but for [not necessarily] a more vulnerable consumer.

“We pulled that together and shared that with the insurers but also the FCA.”

Following the ombudsman sharing their findings, Direct Line was ordered by the FCA to go back through five years of claims and review total losses where vehicles had been written off to identify policyholders who received unfair settlements and offer “appropriate redress”. 

In a notice for customers on its website last June, Direct Line stated it was working to identify “everyone affected” and would “put things right” for underpayments on written-off cars between 1 September 2017 and 17 August 2022.

Consumer Duty checks

The action against Direct Line came before the FCA introduced the Consumer Duty, which came into force for new and existing products, or services that are open to sale or renewal, on 31 July 2023 and will be applicable for closed products or services on 31 July 2024.

The Duty introduces a new consumer principle, which requires firms “to act to deliver good outcomes for retail customers” when it comes to products, services, price, value, consumer understanding and support.

When asked was the ombudsman now reporting back to the FCA on whether the Consumer Duty is being properly adhered to by the industry, Lam observes fair value assessment requirements have been in place for general insurers for a while.

“We had already done quite a lot of work around pricing. On price walking, we shared what we saw on this and where people query the value of their product. When we shared some of our thinking around that [with the regulator], we also shared it with the sector too.

“Around pricing we didn’t see a huge volume of pricing complaints, but we have seen an uptick.

“It is still early days with the Consumer Duty, but on consumer understanding it is an interesting area and whether we start to see complaints on that.”

On the steps she wants the industry to take on checking consumer understanding, Lam says: “Where the claim is delayed, being able to adjust the process and inform people upfront that timescales are going to change as these are the parties are involved and this is what is likely to happen is important, particularly where someone is vulnerable.

“If someone relies on their car to take their child to school, for example, and their vehicle is a total loss or in need of a lot of repair, and it will take three-months to get them back on the road, then they need to be made aware.

“Not getting that [message] through the [insurer’s] process, not showing them where they are and not having that conversation about what they can do, is where we often see the detriment [to consumers].

“It is not the issue [of the delay] – it is the communication, the engagement, and the need to sometimes step out of their process and think differently for an individual. They may need to do something differently because of where the consumer is at.

“If you look at property insurance, for example, where someone may have had significant issues with their home there will be third parties involved in working with the insurer to get that house back to the way it was.

“That complicates [things] and for someone who is vulnerable they might wonder: ‘Who am I speaking to? How do they relate to the claim?’ 

“That communication [about third parties], engagement and oversight – the Consumer Duty has really put a lens on that.” 

Road ahead

Looking ahead at the ombudsman’s caseload for 2024, Lam says: “We expect them [the number of complaints] to remain relatively high, driven by the cost-of-living, premiums being higher and still a lot around motor valuations. 

“We’ve reissued our approach to that. Also, we are still seeing claims delays.”

On the service’s capacity to flex in case of a surge in complaints, like the thousands more it received following the payment protection insurance mis-selling scandal, she says being structured as an insurance directorate helped the service face into that.

“In the last year we have seen an increase in volumes and working across insurance we have been able to look at what is the range of complaints we are getting, where are we seeing peaks – in motor for example – and where do we cross-train people working on similar insurance cases, in property for example, so that we can flex into the demands we see.

“We also actively engage with the sector to get a heads up on what is in the pipeline and surge in complaints so we can build a workforce to respond.”

Given Lam’s past transformation role at the ombudsman service, will the solution to surges in caseload always be training and hiring more human assessors or could technology play a role in scanning complaints in the future?

Could artificial intelligence replace human ombudsmen in deciding who is in the right or wrong?

Lam views technology as allowing ombudsmen to work smarter rather than replacing them in the years to come.

She says: “It is a human who looks at the complaint. It is a human who is needed to pull that complaint together, understand the evidence and weigh-up – based on the rules – what is the fair and right outcome.

“In the years I have been here, we have evolved a lot in how we use technology to scan documents and upload information to share with our investigators. The better we make that the better supported our investigators are.

“We are continually thinking about how we use technology to support people.”

A common industry complaint over the years is whether ombudsmen, with no qualifications that would allow them to work in the sector, are equipped to consider calls for cash from policyholders.

Lam, who has never worked in the financial services industry herself and has a background in the civil service, says every adult has an insurance policy and awareness that the impact on consumers, if the product goes wrong, is significant.

On hiring ombudsmen and investigators and ensuring they have the right knowledge to decide cases, she says: “It is about judgement skills. The ability to look over the evidence and put weight and frame a judgement. 

“You don’t need to be a technical expert to do that. Critical thinking skills is where we focus our training.

“Of course, you need to be able to understand policy nuances and structures, rules, and industry practice, and so on but we have a system that sets out types of cases and sets out rules to consider and how you might put weight on certain rules. 

“We offer a lot of coaching and mentoring on how to put weight on certain evidence.”

What next?

Another change the industry may see from the ombudsman this year is law firms and claims management companies may be charged to register a complaint. 

At the same time the ombudsman has proposed reducing the cost imposed on an insurer when a complaint is registered by £100.

Consumer groups have slammed the move, with the Association of Consumer Support Organisations saying it will almost certainly lead to fewer complaints being made.

We had the consultation out and are now at the point of reviewing [the feedback received to] that. There are strong views on both sides, and we need to work through that.

Providers sick and tired of ambulance chaser’s adverts that encourage consumers to complaining simply because they purchased a particular type of policy, without checking whether a grievance is warranted, have applauded such a step.

On whether the proposal will go ahead, Lam says: “We had the consultation out and are now at the point of reviewing [the feedback received to] that. There are strong views on both sides, and we need to work through that.”

In response to claims that law firms and claims management companies are required, Lam flags the ombudsman will support consumers if they struggle to raise a grievance against a provider.

“Since I’ve been here the focus has been how we make consumers aware they can come to us and how do we make ourselves accessible. It is about ease of use and our use of technology,” she says.

“We are really keen to look at ways we can make access [to the ombudsman] as easy as possible so there is no barrier to raising a complaint.”

Consumers can both call and use online forms to complain, and Lam flags the Consumer Duty expects ease of access to be addressed by the industry too.

She says: “Often if you have a claim putting you in a vulnerable situation, you want to pick up the phone [and speak to someone].

“We will support them through the process in articulating their complaint.”

Dreams

While Lam admits she didn’t dream of being an ombudsman as a girl, she says she knew she always wanted to have a positive impact on society and feels in her current role she is achieving that.

She says: “I did a PhD and stepped into the civil service as I felt that [type of] work was where I could have an impact. In the civil service you can really have an impact for so many people.

“Coming into the ombudsman, I am leading teams and working across a sector where beyond the policy, looking at people’s complaints, there is no better day than when I understand someone’s narrative and where we can have an impact for that individual.”

Ultimately, could her biggest impact on society be creating a general insurance industry where an ombudsman was no longer needed, as the sector always meets consumer’s needs and expectations?

“In an ideal world, an ombudsman wouldn’t be needed but things evolve. You just need to look at Covid to see that,” she says.

“The industry needed to respond to that. Insurers must respond to the changing environment. We didn’t receive complaints around pricing years ago, it is a more recent thing, and we need to respond.

“People are saying to us [today] that ‘It doesn’t seem right that…’ and we need to share that [information] with the sector and help them respond. It is just so empowering.”

Expect to continue to see Lam at industry conferences like today’s ABI event in the years to come, sharing the consumer’s voice and connecting it to wider issues such as motor valuations and encouraging the sector to change the way it works.