Claims could only be arbitrated at no cost by the FOS with the outcome being determined by the FOS with a low-cost form of appeal for each party.
Next, the Financial Ombudsman Service should operate by assessing claims on the basis of evidence available and/or the balance of probability and not by way of retrospection.
There should be no FOS fees as these should be absorbed in the regulatory fees.
In the case of ‘guilt’ there should be an element of affordable excess and redress payable by the firm, again set as a percentage of turnover. This should mean that firms do not go out of business because of a claim or a claim against others.
There should be a bad behaviour ‘one strike and you are out’ standard, or where redress amounts are above a certain level and you are out ruled out, possibly first time.
There would be no need for individual PI as the FCA should/ could, rather like huge corporates, self-insure by way of the fund and as a last resort, in the event of a ‘Torrey Canyon’ style event, the FCA could have in place a reinsurance pool made up of as many insurers, PI or otherwise to remove any doubts of being selected against.
In other words, tear up the current protocols, the status quo and think a bit differently. Think self-insure as a regulated group and think re-insurance.
The maths
Let's look at some of the figures involved to see how this might work in practice.
- In 2017 £22.1bn of revenue was earned by retail intermediary firms in 2017 from insurance, investment and mortgage mediation activities, compared to £20 billion in 2016. Source: FCA
- Over £300m was paid by firms in PII premiums in 2017. Source: FCA
- The FSCS paid in claims to the year ended March 2017 £375,262,000 (£130,362,000 was recovered). Source: FSCS Financial review page 47
- The biggest single cost to the FSCS in that year was £306,246 in interest. Source: FSCS Financial Review page 47.
There are some 50,000 firms across many business areas that are registered with and regulated by the FCA. Therefore, if every firm regulated by the FCA paid 0.5 per cent of their turnover, based on the above numbers some £1.1bn would be raised.
There would be no need for PI cost and a sum could be set aside to reinsure firms, which would be easily covered within the 0.5 per cent cost.
Money is being made in the ‘industry of compensation’ that would be better used by ploughing it back to the pot. This mean confidence would be restored, bad businesses would be put out of action very quickly, and all that money saved on a firm level basis could be put towards providing lower cost, easier access to advice.
It could also help pay for better regulated products and services, created with foresight to benefit the consumer rather than action carried out in hindsight to compensate them.
I hope that this very brief summary could be the basis of a simple, but effective, new way to deal with compensation.
