Packaged Bank Accounts, one year on.

The sale and after-sale care relating to Packaged Bank Accounts (PBAs) has been high on the regulatory agenda over the past few years, culminating in the publication of the FCA’s thematic review TR16/8. Almost one year on, firms continue to experience challenges and high volumes of complaints regarding these products.

PBA’s are paid-for current accounts which include at least one insurance policy, typically relating to mobile phone or travel insurance. Packages vary from one provider to another, and in some cases customers can choose what to include from a range of options. At their peak, approximately 9 million UK customers held PBA’s and there is a still a substantial market for this type of account.

To reflect the unique nature of PBAs, there is a dedicated section of the Insurance Conduct of Business Rules (ICOBS) relating to the sale and operation of these accounts and their associated insurance policies. The thematic review focused on cases from Q4 2014 and considered how well firms were complying with these rules. The reviews found weaknesses with point-of-sale eligibility checks, poor provision and content of annual eligibility statements and poor complaints handling.

Where multiple insurance products were included, many firms failed to check the eligibility of the customer for each one. Insufficient record keeping meant that it was difficult or impossible to discern whether appropriate point-of-sale checks had been made.

Firms are also required to check and alert customers if a particular policy is unsuitable for them, this is backed up by the annual eligibility statement requirement which is designed to prompt customers to re-assess their policies against their needs. In general, the annual eligibility statements produced by firms were satisfactory but the FCA noted there was room for improvement. The regulator suggested that the style of the statements could be re-designed to make them more engaging and user-friendly for customers.

The thematic review raised serious concerns around the complaint handling arrangements in relation to mis-sold PBAs. For complaints that did not relate to a mis-sale, fair customer outcomes were achieved almost 90% of the time, for mis-selling complaints this figure fell to just 44%. Cases of customer detriment were much more common in relation to mis-sold products than in relation to other types of complaint. For mis-selling complaints, the FCA found that firms were deviating from their own policies and procedures in 88% percent of cases. This raises the question of why firms continue to find instances of mis-selling and related complaints far more difficult to deal with than other areas, where it appears much easier to ‘get it right first time’?

Although the initial thematic review into PBAs was published last summer, complaints in this area continue to rise. In the second half of 2016, PBA’s were the fifth most complained about product, with firms reporting just over 172,000 product-specific complaints. This accounts for approximately 6% of all complaints reported to the FCA in the same period.

Data published by the Financial Ombudsman Service (FOS) for the year 2015/2016 also makes for interesting reading. During this period, the FOS received in the region of 44,000 new cases relating to PBAs. The overturn rate, i.e. – cases where the FOS disagreed with the decision or rationale provided by the firm was more than one in every ten cases. PBA complaints to the FOS have come to fore again with volumes increasing by 107% throughout 2016. Interestingly, in the majority of cases the FOS is now able to uphold the decision made by the bank, but numbers still continue to rise.

Some people consider PBA to be ‘the new PPI’ but this particular comparison is not wholly accurate. Many more Packaged Bank Accounts have been opened than PPI policies sold, but PPI was a far more expensive product than a PBA. Although in many instances both PPI and PBA products were mis-sold, a high proportion of PPI products were of no benefit to the customer they were sold to, whereas the benefits comprising PBA’s can often be of significant value to the customer. Recently, the consumer magazine Which? published an article in which they shared their findings that PBAs can offer value for money, provided consumers have access to the right benefits for their needs. In more than half of the PBA offerings assessed by Which?, the value of the insurance on offer was greater than the monthly fee.

The potential cost of remediating PBA complaints is unlikely to ever match the record sums paid out by firms in relation to PPI, and in our opinion both firms and their customers can benefit from the lessons learned as a result of the PPI saga. Firms will be working hard to make sure the PPI experience informs their decision making, procedures and deployment of resource to ensure that PBA related complaints are handled correctly first time.  For example, firms may need additional resource to ensure that the predicted increase in PBA related complaints, coupled with the imposition of the PPI time-bar does not leave their teams exposed or over-stretched. Experience tells us that this is when well-intentioned policies and procedures are most likely to be overlooked and good customer outcomes are most at risk.

Unsurprisingly, Claims Management Companies (CMCs) have been actively seeking out and processing PBA claims. Many firms are finding that when a customer engages a CMC to process a PPI complaint, the wording of the claims managers’ terms and conditions gives the CMC the authority to pursue complaints relating to a variety of products on the claimant’s behalf. This has undoubtedly contributed to the sharp rise in PBA complaints witnessed in recent years.

Through this practice, CMCs maybe inadvertently encouraging consumers to submit complaints that are unwarranted. Although no redress payments will be required in relation to the unwarranted claims, firms still have an obligation to review them and the costs in relation to the review could accumulate significantly.

The advertising standards agency was forced to ban two adverts commissioned by one CMC firm which included the names of various large retail banks and suggested to consumers (inaccurately) that the average ‘refund’ received in relation to PBA claims was over £3,000 pounds.

In recent decisions, the FOS has criticised CMCs for failing to distinguish, in their approach, between Packaged Bank Accounts and Payment Protection Insurance policies. CMCs continue to be responsible for a high percentage of all the PBA complaints submitted to the FOS and some commentators have suggested that referring cases to the FOS is now standard practice for claims mangers, irrespective of the quality of the decision made by firms in the first instance.
RFS has been supporting several firms to overcome the challenges posed by PBA remediation. The FCA expect the first line of defence to take ownership for managing conduct risks for Packaged Bank Accounts, and for the second and third lines to provide robust challenge. RFS can help provide this robust challenge through the deployment of our tried and test Outcome Testing methodology. Outcome Testing challenges firms’ policies, processes and practices; and identifies weaknesses which may be contributing to poor customer outcomes. The Outcome Testing methodology is completely independent of traditional quality assurance measures and provides meaningful MI which can be used to demonstrate real-time improvements to customer outcomes.

We have had great success in helping clients to improve their overturn rate for cases referred to the FOS by applying our outcome testing methodology to improve responses to FOS submissions.  This has helped a leading retail bank to reduce their FOS overturn rate by over 50%, leading to significant cost and time savings.

In relation to large scale remediation projects, we have enabled many of our clients to develop improved relationships with CMC companies who often contribute to the high-volume peaks in complaints experienced by firms. Strengthening this relationship has proven to reduce the number of unwarranted complaints received, and helps our clients to better manage incoming complaint volumes and allow for improved capacity planning.

Remediating PBA complaints does not need to be as lengthy nor arduous for firms as the same process in relation to PPI.

To find out how RFS can help you with PBA complaints management please get in touch.

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