Increasing the FOS’ Compensation Caps
It seems to be inevitable that the FOS’ compensation caps will be increased. On its face this seems like a good thing for consumers but the reality will be very different.
The problem is that the FOS system only works where adequate PI insurance arrangements are in place. At present, there is a major problem with FOS Determinations not being paid. This is because some AFSL holders operate without having insurance at all, some do not have enough insurance coverage, some have a deductible that is so high that they effectively don’t have insurance and finally some insurance policies are so full of exemptions that they do not actually cover anything.
These problems with insurance coverage will become much worse if the compensation caps are increased. The issue being that the FOS is not a Court – its decisions are not made by Judges and it does not have the processes in place that allow a Court to discover the truth (particularly it does not have a process in place that allows it to hear oral evidence). The effect of this is that the outcome of FOS matters are much harder to predict than when a matter is dealt with by a Court. This creates risks for insurers, which if the compensation caps are increased, will be much more severe (because the amount of an adverse judgment will be very much higher than it could be today). This, in turn, will lead to all of the current problems with respect to PI insurance being much worse – there is no point having a dispute resolution scheme in place where people who use the scheme do not actually get paid.
The best outcome for consumers would be to change the costs rules that apply to Courts so that each side would bear their own costs whatever the outcome. This would significantly increase access to justice for consumers but in an environment where insurers can properly manage their risk.