At times the insurance industry seems to defy gravity, growing profitably even in the direst of economic conditions. Yet the recent announcements by Aviva and Direct Line of job losses of 2,000 a piece are a reminder that our workforce is not immune in these recessionary times. As the pricing conditions in UK continue to deteriorate we can expect more companies to pursue cost-cutting strategies to preserve their profit margins.

Despite all this and bucking the trend, the Financial Ombudsmen Service (FOS) is in contrast recruiting; increasing its staff numbers by 1,000 in the next 12 months. Funded by the industry, the FOS are the independent experts who sort out individual complaints that consumers and financial businesses are not able to resolve themselves. They are busy people. According to their CEO Natalie Ceeney, speaking to the CII Journal, the FOS are now dealing with 2,000 formal complaints about Payment Protection Insurance (PPI) per day, a 140% increase over last year. Even other areas of business are producing 20% more unresolved complaints per annum.

By mis-selling pensions, endowments and PPI, public confidence in the financial services sector to offer sound advice and provide suitable products has been tarnished. As the price to pay to restore customers’ trust, insurers have accepted that they need to embed a culture supported by processes that ensure what they offer meets a genuine need and is marketed fairly. Most agree that getting their house in order is necessary despite the sizeable extra cost. There are signs, however, that attitudes might be changing.

No doubt some extended warranties or mobile phone insurance policies are poor-value but the consequences for the consumer are less profound than what happens when long-term savings, retirement provision or property financing are messed up. Therefore the decision announced last week by the Financial Conduct Authority (FCA) to conduct a market study in to these sorts of add-on products is raising one or two eyebrows. According to the Insurance Insider, this is the seventh new review announced since April. No surprise perhaps that Aviva’s CEO Robin Spencer, speaking at the recent ABI conference, discouraged the FCA from trying to “solve everything” and called for some “proportionality and priority-setting”.

Once they are done hiring, the FOS will have 4,500 employees and the FCA already has 2,800; sizes of organisation comparable to a leading insurer. Added to this are the legions of people working inside insurance companies and brokers whose job it is to ensure that the regulations are understood and followed. The compliance industry-within-an-industry has evolved and is expanding fast whilst the sector it serves seems to be entering a phase of retrenchment. Unfortunately insurers forced to shrink their investment in service delivery and product development will struggle to cope with the raft of consumer regulation and ultimately let the customer down, leading to more complaints. If this cycle of discontent is to be avoided, then business leaders and policy-makers should agree a common compliance agenda that rightly protects the public but is also deliverable within the economic constraints that insurers and brokers may soon find themselves.