By Paul Clark, Chief Executive Officer at Charter UK, a provider of enterprise complaint and feedback management software
Some financial services firms are spending 50 per cent more than they need to when trying to remediate PPI. Unless more effective systems and processes are put into place, financial services firms will face a number of serious operational risks, as well as high costs, as they continue to battle PPI remediation in the months and years ahead. Already, two of the UK's biggest high street banks have posted half-year losses totaling nearly £2bn as the rising cost of PPI remediation continues to take its toll.
The amount being set aside for PPI remediation is also still climbing; the same banks that just announced significant half-year losses have also raised their provisions for PPI claims by an additional £835m. In total, UK banks, building societies and card companies have already paid out more than £5bn in PPI claims, and analysts now expect the final bill to exceed more than £10bn.
It's clear from these figures that the industry has significantly underestimated just how challenging PPI remediation is, and is now spending far more than it originally planned to address this issue. The Financial Ombudsman Service (FOS) currently receives around 1,000 new PPI complaints every day, and upholds 80 per cent in favour of the consumer. In total, the FOS has received nearly 400,000 complaints about the mis-selling of PPI, and in the second quarter of this year alone, from April to June, the FOS reported 32,445 new cases on PPI alone.
Despite the spiralling cost of PPI for the banks, many firms are finding that their investments in this area are not delivering the desired results. These firms will therefore need to look at how they are processing these claims, and will also need to question whether they are addressing PPI in a way that will reduce both their costs and their risks.
PPI remediation is 'here to stay'
Up until now, many financial services organisations have simply looked to their internal IT departments for a solution to the PPI crisis. However, the decision to integrate PPI remediation into existing IT systems – and then deploy extra resources to manage these processes – has proved to be an extremely inefficient, expensive and high-risk course of action.
Thanks to high profile publicity campaigns from consumer groups such as Which? and Claims Management Companies (CMCs), the number of PPI compensation claims continues to rise. At the same time, the banks have begun writing to the millions of people who may have been mis-sold PPI, but have yet to lodge a complaint. These customers will have up to three years, from receipt of this letter, to submit a claim.
As a result, many firms are starting to realise that PPI cannot simply be absorbed into a business's existing complaints handling processes. Instead, PPI needs to be approached as a standalone issue, as it is basically a high volume of cases to process that stem from one root cause.
If a firm were to consider a manual approach to deal with this level of demand, it would not only need to redeploy extra resources internally, but would also need to bring in temporary staff with a solid understanding of complaints, claims and business processes, all of which will increase costs considerably. In fact, because of inefficient practices like these, the administration costs of resolving PPI claims are likely to account for around 15 per cent of the total compensation bill.
Smart firms have begun to realise that PPI is not a short-term 'business as usual' problem. As such, banks and other financial services organisations need to ensure they are looking at PPI as an issue that will demand their attention and resources for at least three more years, and to consider whether they are using the most streamlined, cost-effective, claims handling processes available in order to reduce their costs and control their risks.
Some of the questions to ask here are: how reliable and scalable is your current PPI remediation platform? Are you relying on increasing your headcount, training and resources to cope with PPI? And are you ensuring compliance every step of the way? Firms will need to have clear answers to these questions in order to adopt a methodology that will allow them to eliminate risks and control costs – since any mistakes here could cost financial organisations millions of pounds in needless expenditure.
A new approach to PPI
Many financial services firms have come to realise that they need to have the right methodology in place in order to implement an effective PPI remediation programme, whilst also reducing the risks and costs associated with such a large-scale project.
Traditional complaint management systems are simply not fit for purpose when it comes to PPI, as they are unable to deal with the complexity or volume of complaints being received, and can also be very difficult to modify. Worse still, financial services firms tend to use multiple complaint-handling systems to cater for different aspects of their business, which compounds this problem even further.
This disjointed approach also makes it impossible for a company to have a universal view of the complaints that it's receiving, and to achieve any real consistency with its customer interactions. For all of these reasons, firms need to find a more effective solution to PPI remediation – unless they want to risk wasting millions of pounds on administration that doesn't translate into results.
Effective PPI remediation can help to achieve this goal by stripping out all of the complexities involved in this process. In fact, by streamlining and automating their PPI remediation processes, firms can benefit from 50 per cent efficiency savings, which equates to multi-million pound savings.
Unlike a traditional approach, a best practice PPI solution can automate the majority of the processes required for PPI remediation, which is why many firms have now recognised that this 'factory process', rather than traditional manual methods, will be the most effective way to reduce costs, as well as risk.
As the PPI crisis enters its fifth year, one thing has become clear: the FSA has vastly underestimated the amount of effort that would be required by the banks and other financial services firms to address PPI remediation effectively. With the possibility that 20 million consumers may potentially have a claim, it's now very clear that a more strategic approach to PPI remediation is urgently needed for firms that want to control their costs and reduce their risk – not just right now, but also in the months and years ahead.