The FCA anticipates that up to 500 complaints a year might result in compensation of more than £150,000. These complaints are likely to involve insurance against significant losses, covering, for example, serious fires or catastrophic personal injuries, pension products/investments or large commercial loans. The increased limits are therefore most likely to impact general insurers, IFAs, commercial lenders and their insurers.
The impact will be enhanced by the simultaneous extension of the FOS jurisdiction from consumers and micro-enterprises to larger SMEs (those with a turnover of under £6.5m and either a balance sheet of under £5m or fewer than 50 employees), as well as to larger charities, trusts and personal guarantors. According to the FCA an additional 210,000 SMEs will now be able to use FOS and it anticipates 1,300 complaints a year from this source, drawing insurers, brokers and IFAs providing investment advice to SMEs into the net. The FCA considers that the increase in the FOS jurisdiction will give such businesses "greater confidence to deal with unfamiliar firms, such as those that are new or recently–founded" and will thus increase competition. The thresholds selected reflect the level below which SMEs are unlikely to have access to financial management and legal expertise, in the absence of BTE insurance of course!
The FCAs note that these changes will mean that many of the respondent firms of brokers and IFAs will be substantially smaller than this new class of complainant. It brushes this aside on the basis that respondents are FCA regulated and will have more financial expertise and so will be better equipped to respond to complaints than the SMEs would be to make them.
Concerns have been expressed about the FOS's ability to handle these complaints, as they are likely to be significantly more complex than average. One of the key examples given was that larger SMEs are more likely to buy bespoke or complex insurance cover and thus coverage disputes will typically be more complicated than the average household dispute. These comments were made against a background of complaints around the FOS's handling of more complex cases, which culminated in a negative portrayal of its ability on Chanel 4's "Dispatches" programme and 2018's independent Lloyd Review of FOS. While the Lloyd Review identified some issues in relation to complex cases, partly in response to these concerns, FOS has set up a ring-fenced specialist team to investigate larger SME complaints with dedicated investigators, team leaders and legal resource. The team will also have access to forensic accountants and external experts as well as an advisory group comprising representatives of industry and small business.
While Insurers may therefore be concerned about the increased value and complexity of claims being considered in what has sometimes been portrayed as a "Wild West" jurisdiction, the advantage of FOS is in the substantial costs savings over conventional litigation for the more run of the mill cases. More complaints are likely to be made, but with a maximum value of £350,000 the costs are likely to be more proportionate than in the County or High Court and over a substantial book of business, the odd unexpected result will be counterbalanced by cost savings, particularly when one considers the very high cost of defending court proceedings brought by litigants in person, be they individuals or companies. As Winston Churchill once said, "an optimist finds the opportunity in every difficulty" and there may well be opportunities to save costs in what are superficially at least, difficult and potentially expensive changes.
For more information please contact Harriett Quiney, Partner T+44 20 7280 8873, Harriett.Quiney@dwf.law