Making sense of surging complaints in Life & Retirement - and how to solve the challenge
The Life & Retirement (L&R) industry has experienced distinctive trends since the pandemic driven by shifts in interest rates, the cost of living crisis and a reversal in life expectancy increases. This has resulted in some very tangible changes such as a sharp rise in annuity sales, cooling off in protection and higher claim rates. Alongside these impacts there has been a notable rise in complaints - specifically across pensions.
Using the latest Financial Conduct Authority (FCA) data (25 April, 2024) and our own delivery experience in complaints, we explore why this rise has happened, its impacts and three critical activities to address this complaints conundrum.
L&R complaints trends contrast with wider financial services
Across financial services (FS) as a whole, complaint volumes have naturally moved around over the past two years (+/- 5%-7%) but are largely in the same place as at the end of 2021 when we exited the pandemic. While there are movements within each product type the number of complaints per 1,000 products has remained relatively stable.
Insurance and protection has also broadly followed the same overall FS trend. Most Life insurers are addressing complaints in a timely manner with a few outliers who have higher volumes and aged complaints. Complaints per 1,000 policies is broadly flat over the last two years (2.13 complaints per 1,000 policies in H2 2023).[1]
The bigger story is the significant and sustained 40% rise in Decumulation and Pensions complaints in the last two years. This has worsened in 2023 with over a 20% increase versus 2022. The number of complaints per 1,000 policies also increased broadly in line with the volumes across the industry.[2]
But what is the story behind the numbers and why is this happening?
Exhibit 1 - FS Overall and Pension complaints per 1000 policies 2021 H2 - 2023 H2[3]
Explaining the complaints conundrum
The causes of this increase are complex and relate to the interplay between macro level trends, core products and the customer journey. Based on our work in the industry and knowledge of complaints data, we can identify a few critical factors at play:
Core service delivery models under pressure
In spite of digital investments, customers are contacting insurers more frequently than ever. 78% of pension complaints and 63% of insurance complaints are related to service. Based on our experience common causes of complaints include communication and the standard of written communication, and service delays. While the tightness of the labour market is easing and attrition is becoming less of a challenge, service models clearly remain under pressure based on what customers are experiencing.
Unexplained delays in claims and bereavement support
Customers are not only contacting insurers more frequently, their families/dependents are also claiming more frequently[4] with the post pandemic spike in mortality. Complaints over unexplained and extended delays in bereavement support and claims are increasingly common which can explain the outliers in protection and a proportion of complaints in pensions.
A fundamental mis-match of expectations on access to cash
The decision to access pension pots to cover everyday costs has become common with the cost of living crisis. These requests have real urgency. However most ‘money out’ processes at insurers lag and are measured in weeks when a customer is thinking in hours or days. Unmet expectations are a major cause of anger.
Customer concerns with products and fees
The economic climate has created heightened awareness among customers of underlying pension investments, how they are performing and value for money. 15% of pension complaints relate to information, charges and performance - the second highest cause. Based on our delivery work in the market there are a proportion of customers who don’t understand what they have invested in or feel charges are not justifiable.
Exhibit 2 - Complaints causes in Decumulation and Pensions 2023 H2[5]
The problems created for the pension industry and customers
Complaints teams have been overwhelmed at huge cost to the industry
Across the sector this surge has put existing teams under significant strain. Most organisations in the retirement sector, and the few protection outliers, are operating outside of what we would consider to be normal limits for this sub-sector (low complaints per 1,000 policies and <5% of complaints outside of eight weeks).
We estimate the surge in complaints has created demands for in excess of 300 additional FTE across the industry over the last two years at a huge cost. Having a large operation is not necessarily the issue. It is having a sustainable delivery model that can safely scale when demands rise. Customer experience of the complaints process has materially deteriorated during this period, with complainants enduring prolonged wait times for resolution. On average 20% of pension related complaints were closed in over eight weeks in 2023 - significantly higher than 2022 (see Exhibit 3 below) exacerbating the challenge.
Trust is being eroded
With customer experience deteriorating at important moments, trust is being eroded in the core promises of the sector: that the insurer will be there in the moment of need and get money into the hands of its customers in a timely fashion. Unchecked, this complaints conundrum could build into more than just a story of numbers across the sector as a whole creating a reputational impact for firms who don’t address it.
Doubling down on regulatory scrutiny
The increase in regulatory scrutiny in the last nine months has been tangible. The FCA is using complaints data to identify risks of harm, and is expecting firms to react and address issues identified through complaints metrics quickly. There has been an increase in focus on root cause analysis, Financial Ombudsman Service (FOS) referrals and understanding the models that are in place. All of which has added to the load on stretched management teams. We expect this to be a continued focus from the FCA as it looks to firms to ensure a more proactive response in the reduction of customer harm in line with Consumer Duty.
Exhibit 3 - Decumulation and Pensions - complaint resolution speed[6]
A sustainable model for solving the complaints conundrum
This complaints conundrum will continue to evolve as new challenges arise. Based on our experience there are three key responses that will support greater resilience, productivity and a sustainable reduction in complaints:
1. Establishing Root Cause Action to reduce complaints volumes
Insurers’ capability in root cause analysis is mostly low maturity, hindering sustainable reductions in complaint volumes. This is an increasing area of focus by the FCA and an essential tool to meet Consumer Duty expectations. It needs to evolve into a proactive capability (Root Cause Action) with a robust methodology linked to the core complaints process and systems. This requires a shift to not only identify underlying issues but empowerment to act with colleagues across the organisation, and robust governance backed by accountability for delivering (and tracking) action plans.
2. Creating a resilient and highly productive complaints model
To cope with future fluctuations and a changing market, insurers should focus on building a robust and sustainable complaints model. This is part of how firms need to consider changes to their approach to meet the consumer support outcome of Consumer Duty. This will involve for example:
- Evolving delivery models: Flexing insurers’ retained models to include provision by managed service providers and not just contractor support to solve short-term peaks. This will deliver not only rapid ramp up/down but enable continuous improvement and embed high performance on an ongoing basis.
- Investing in high performing teams: Codifying how teams should be led and operate using high performing routines and better productivity and performance data capture and visualisation. Based on our experience this investment will increase engagement, productivity, quality and reduce cost per closed complaint.
- Establishing comprehensive methodology: Evolving from procedures mindset to a Complaints Playbook that creates the standard for future delivery. This includes not only revisiting core process efficiencies but innovating training and quality, career pathways, streamlining governance and re-setting the interaction model with the rest of the business to create the right foundations for high performance.
3. Using AI to drive productivity and prevention
Complaints lends itself to AI. There are highly value-adding use cases not only to make the process more efficient and effective, but also to support the overall reduction in complaints. For example:
- Delivering Root Cause Analysis to automate identification of issues, so more time can be spent on actioning underlying issues across the organisation;
- Supporting feedback and performance management in real time back into the front line, automating what is done periodically in spreadsheets; and
- Undertaking call listening and issue identification to get to the heart of what is being raised across the entire complaints population systematically.
There is much more to share on the analysis supporting this point of view and our experience from complaints delivery. Please contact Jamie Drysdale for further details.
