Processing claims: what we need

At FSCS we aim to investigate, and process claims as quickly as possible. To be able to uphold a claim, we need to be satisfied that there’s a protected claim by reference to the FCA Handbook’s COMP rules. Every claim is unique, and many can be complex depending on the type of product. This means that at times it can be very difficult for us to predict how long it will be before we can give customers a decision on their claim for compensation.

When dealing with any type of claim, there are two main stages of investigation. The first stage, the default investigation, is to satisfy ourselves that the firm in question has indeed failed (meaning that it can’t meet claims against it), before then determining whether there is evidence of an FSCS protected claim. The second stage is a customer specific claim investigation. We need to be satisfied that the firm owed the customer a legal liability, which is why our data gathering process is so important.

Certain claims may have an additional stage of investigation before either the Default or claim specific stages can occur. This is required when claims can’t be processed under existing procedures – often claims involving pension liberation, fraud, SIPP operators, non-standard investments, or whenever it’s not clear that the firm’s activities will give rise to a protected claim.

Gathering evidence from third parties is usually what takes the most time during our investigations. Third parties are companies other than the failed firm who may have information that can help us assess a claim – for example, the insolvency practitioner (IP) responsible for winding down the failed firm, or other third party firms that have critical datasets relevant to the claim, like a pension provider. When customers have been waiting for an extended period of time, it’s often because we are waiting for information from these third parties in order to be able to complete our investigation.

Although we chase third parties regularly, we can only process claims and deliver decisions as quickly as the last respondent in the chain. For some claims, we need to gather information from multiple third parties, some of which can expire while we are waiting on another, which can contribute to delays. That’s why I’ve written this piece: to share insight on the types of evidence we need, the most common challenges we see in the evidence gathering process, and the work we are doing to help improve this.

Gathering evidence for a pension advice claim

We look at a range of evidence from the customer, failed firm and multiple third parties when assessing a claim. This helps us to build a full picture of the customer’s situation at the point of failure and assess whether a liability arises from the regulated activities carried out by the firm, such as providing unsuitable pension transfer advice. Using this information enables us to accurately decide on the outcome of the customer claim and, where applicable, calculate how much compensation they may be due.

Let’s use pension advice claims as an example. First, we need to establish whether the claim is eligible and covered under FSCS protection, which is normally carried out by a review of the firm’s activities, such as any advice they provided, and the dates that the advice took place. If eligibility is established, we then need to find out whether the advice was suitable or not by looking at what advice was given to the customer in light of their individual circumstances and investment objectives. As the failed firm no longer exists, this normally requires information to be provided by the customer and the advising firm via the firm’s insolvency practitioner. This includes the benefits and details of the original investment, the advice that was given to the customer, and information on the investment they moved to.

There can be additional logistical challenges at this point. For example, if the failed firm had stored the relevant information with a third party but this relationship wasn’t upheld (e.g., the third party had stopped being paid), this can make it hard for us to obtain the details we need. We don’t necessarily always receive sufficient evidence.

If we get the information we need and the advice is deemed to be unsuitable, FSCS will then calculate any losses the customer incurred and pay the compensation due. To do this, FSCS requires information regarding the original ceding pension scheme, the benefits given up and information on the receiving scheme and the current investments. On average for pension claims, five different parties are required to provide information in order to accurately calculate the compensation due.

Once this information is obtained, FSCS utilises an industry approved calculation tool to calculate the compensation by reconstructing the original pension and modelling the current day value of the original pension, as if it had not been transferred. It also takes into consideration the current valuation of the scheme today.  

Challenges in the process

Gathering information from multiple different parties, all with differing processes for providing information, lead times and workloads can present significant challenges. FCA authorised firms are required to provide us the information we need in a timely manner as a result of the FCA’s COMP rules.

55% of FSCS data gathering is completed within 90 days. There are many third parties we work with that do a great job of providing us the information we need - for example, 49% of non-British Steel Pension Scheme claims data requests come back in 30 days. But the 45% of data gathering that takes longer than 90 days is a real challenge and doesn’t feel acceptable when we are dealing with customers who are thousands of pounds out of pocket.

Sometimes, the challenges can be as simple as the number of firms involved in a claim. Insolvency practitioners, the Insolvency Service and the Financial Ombudsman Service (FOS) will need to be contacted. 66% of defined benefit pension claims require contact to three or more firms for data. The more involved, the longer it will take to follow the chain from start to finish, so it’s absolutely essential that we get responses in good time. There’s also the fact that if the evidence gathering process takes too long, claim valuation dates will expire, delaying our ability to make a decision for the customer.

In some cases, we need to make requests to unregulated firms who don’t have the same duties as those that are FCA regulated. Many of these firms are efficient, but it can be a real issue if they don’t respond to our requests or take too long to come back to us. We don’t have any statutory power to require information from firms that aren’t regulated by the FCA, so it can be a big issue for us if these firms don’t respond.

A lack of responsiveness can impact customers in multiple ways. They can experience unwanted delays, or we might not be able to follow their claim through at all. We chase all third parties’ multiple times via multiple channels, and we work closely with members of the regulatory family in various ways to challenge poor performers. But if we don’t receive sufficient information we need in a reasonable amount of time, we have to mark the claim as ‘inactive’. Sadly, in these circumstances the claim is passed back to the customer, who can resubmit their claim at a later date if they are able to source some of the information themselves. It’s terrible to think that some people might have to wait an unnecessarily long time or lose out on compensation completely as a result of this.

If we don’t receive sufficient information in a reasonable amount of time when carrying out firm investigations, this will prolong the time it takes to complete our investigation and start assessing customers’ claims, meaning customers are kept waiting longer for a decision. On the flip side, carrying out firm investigations can result in us obtaining a comprehensive dataset that can be used by claim handlers when assessing claims. This reduces the need for multiple requests for third parties during the assessment process.

It can also be more administrative challenges that act as stumbling blocks. Third parties may need to go through a large amount of information and redact certain personal details. Another good example is when a customer’s address has changed. On some occasions, for GDPR reasons, third parties will need to update the customer’s address first before they can release the information to us, meaning an extra layer of contact is needed before we receive the data we need. We’ll often reach out to these customers directly to ask them to provide this information to the third party so their data can be released, but this naturally adds time into the investigation.

Perhaps one of the biggest difficulties is that to be able to make an accurate compensation calculation, we really need all of the data we are gathering to be returned in roughly the same time period. If we receive one piece of evidence too long after another, we’ll have to go back and get the first piece re-sent so that it’s accurate and comparable to the second. 21.5% of data requests to firms need to go back out for further information, so this can be a really difficult balance to strike.

These challenges make our job harder, but unfortunately, it’s our customers that are impacted the most. Some customers may have to wait months - if not years - which can be incredibly stressful, especially when life-changing amounts of money are involved, so it’s crucial that everyone plays their part in the claims process effectively.

Improving the process

We are doing everything that we can to try and improve our ways of working with third parties. In October 2021, we engaged 16 FCA authorised firms to improve third party response times. These firms provide approximately half of FSCS’s third-party data gathering requests.

By working together, we have been able to make vast improvements to our data gathering processes. For example, the streamlining of third-party contact points has ensured our requests are handled quicker and managed more efficiently. Previously, some requests would move between multiple departments (one of the largest we work with had over 13 which we have now streamlined to just one). We have also introduced 24-hour prioritisation for any requests affecting vulnerable customers which is a considerable improvement for all involved.

The third parties themselves have benefitted from these optimisations too. By sharing more FSCS insights on expected demand, they are now able to better plan their own workloads around our requests. A recent cohort of claims saw us requiring over 500 individual transaction histories and valuations from an investment provider. We engaged with them early in the journey to make them aware and understand their appetite for bulk data sharing. They agreed to send us all 500 files at the same time, which we received less than 28 days after the first point of contact. The firm advised us that this would have taken much longer had we not proactively engaged with them and asked for the files individually.

Since launching this work, we have successfully reduced the average response times for several of these firms - including the largest of the third-party pension firms we engage with. Data gathering used to take 30 days on average for these firms - after this engagement, the majority are returned in 21 days. One of our largest firm’s response times reduced from 25 days to 17 days in the 2022/23 financial year.

This proactive engagement continues today. In December 2022, the number of third parties we were engaging with in this way increased from 16 to 20, and we continue to seek to expand this approach to more firms in 2023. With effort from all parties involved, we can really make a difference in the speed of our claims process – and help put customers back on track at the earliest opportunity.

Looking to the future

I’ve talked a lot in previous articles about how year-on-year, we are increasingly seeing more complicated claims, particularly in the pensions market. As the products on offer become more complex, so does the associated claims process when things go wrong. And with added complexity comes added time to fully investigate the claim. This is adding time to the claims process before we even factor in the evidence gathering challenges I’ve discussed.

That’s why it is absolutely vital that we work together to share information as quickly and efficiently as possible. If you work with a third party which engages regularly with FSCS and you’re interested in finding out more about this work or have other ideas about how we can optimise the evidence gathering process, please do get in touch.