ICSTIS Guideline No.8

Compensation Scheme Arrangements for Live Services
(Version 1: 9 March 1998)

Introduction

ICSTIS Guidelines are intended to advise the premium rate services industry on how the Committee interprets or applies provisions in the ICSTIS Codes of Practice. Service providers seeking clarity about the application of any Code provision to a particular service are strongly advised to contact the Secretariat before starting to operate the service.

A current list of all the latest versions of ICSTIS Guidelines appears in the ICSTIS Monthly Report and on the ICSTIS website. Copies of Guidelines are available, free of charge, from the Secretariat.

A. BACKGROUND

Who is required to have compensation arrangements in place?

Live premium rate services are governed by the ICSTIS Live Conversation Services Code of Practice (March 1998) as well as the ICSTIS Code of Practice (eighth edition). Service providers should read both carefully. All live premium rate services require ICSTIS' permission to operate. Conditions, depending on the type of service, may be imposed on the operation of the service. ICSTIS will assess if a service might attract unauthorised callers, and if it is therefore necessary for the service provider to be required to put compensation arrangements in place, when considering the service provider's permission application.

Providers of live 'entertainment' services, such as chat services and tarot services, will almost certainly be required to have compensation arrangements in place. The Compensation Scheme ensures that telephone subscribers can be reimbursed if their telephones are used without their permission to call live services.

What are the compensation arrangements?

Service providers required by ICSTIS to put in place compensation arrangements must do two things:

In addition, service providers must record all calls to which the compensation arrangements are applicable.

How are compensation claims dealt with?

Claims are paid according to the following sequence:

It is hoped that most compensation claims can be settled at the first stage: the service provider will be able to check the claims by listening to the recordings of conversations. The other stages ensure that service providers individually can meet claims and that the live services industry can collectively meet unmet claims in a fair way.

B. BONDS

What is a Bond?

All service providers who join the Compensation Scheme will be required to lodge a bond with ICSTIS prior to operation. A bond is a legal document, signed by the service provider's bank that guarantees the payment to ICSTIS of a sum of money should a service provider be unable or unwilling to meet awards. ICSTIS has negotiated a standard form of bond with the British Bankers' Association. A copy of this is attached. Individual service provider's banks may have different requirements as regards security for the bond.

How are bond sizes calculated?

The purpose of a bond is to ensure that most claims for compensation will be met even after a service provider has ceased trading or refused to pay compensation. The size of the bond therefore needs to be sufficient to meet all claims made against the service provider during the period, 12 months for these purposes, following the service provider's cessation of services or refusal to pay. There is a minimum bond size of £5,000.

In deciding a suitable bond level for individual service providers ICSTIS will judge each application on its individual merits but will always take account of the following four factors:

a) the type of service being provided,
b) the size of the service provider's business,
c) the number of successful awards made against the service provider,
d) the breach history of the service provider.

a) Type of service

One-to-one chat services have generated more awards than, for example, services offering tarot. This will be reflected in the size of the bond: chat providers will therefore be expected to lodge a larger bond.

b) Size of service provider

Based on claim statistics, the Committee will presume that a service provider operating more lines is likely to have a higher number of claims for compensation made against it than one operating fewer lines. In order to estimate the size of the company, ICSTIS will look at the number of telephone lines on which the service provider operates live services.

c) Award history

The level of awards for compensation made during the previous 12 months can be used to help predict the number and size of awards that might be made during the next 12 months. A service provider against which a large number of awards have been made will therefore be asked to lodge a larger bond than one against whom few awards have been made.

d) Breach history

ICSTIS' Codes of Practice are designed to protect consumers and specific provisions of the Live Code exist to help prevent high bills and unauthorised use. A service provider that has a poor record of having breached the Codes of Practice tends to be more likely to allow unauthorised use and hence is more likely to have claims lodged against it. Such a company would therefore be required to lodge a larger bond.

Weighting and rating

The four factors outlined above are not all equally important. Claim statistics show that, for example, the type of service is more important as a factor in generating claims than the size of business. Similarly, the number of awards is more important than the number of breaches of the ICSTIS Codes by the service provider. To reflect this differing influence on claims different weightings will be attached to each of these four factors.

Type of service 2
Size of business 0.5
Award history 4
Breach history 0.5

The type of service is therefore four times as important as size of business in setting a bond and so on.

Each service provider and the type of service they wish to operate will be given a rating against each factor ranging from one to five. A rating of one will indicate the lowest risk against that factor, for example, no awards at all against the service provider. A rating of five will indicate the highest risk against that factor, for example, a very large number of lines being operated by the service provider. Ratings in between will reflect the range of risk. By applying a multiplier, the Committee will then be able to arrive at a bond level. New service providers will be set below average ratings for award and breach history to reflect the lack of knowledge about them.

Other factors

The above system will provide the Committee with a guideline figure only. Other factors may affect the eventual bond level. It is difficult to predict in advance what these might be but, for example, they could include a novel form of service type or the restriction of the promotion of the service to a closed user group. Both these might affect the bond level.

Service providers may operate services on behalf of other individuals, organisations or companies - 'information providers'. Service providers must declare if they intend to do so when making their initial permission application and if they subsequently operate such services. Such action may affect the size of bond required.

Bond levels

When setting a bond level the Committee will disclose the reasons behind its decision to the relevant service provider. Individual service providers bond levels will not be disclosed to others. Each service provider will be set only one bond.

Adjusting bond sizes

ICSTIS will review bond sizes annually. The size of each bond could be reviewed either upwards or downwards, in light of changing circumstances. However, ICSTIS reserves the right to review the size of a bond at any time that it feels to be appropriate: for example, if a service provider wishes to operate a new service, take on a new information provider or change the number of its lines during the course of the year, this could result in an increase in the size of the bond.

Example bond sizes

The following examples are intended to be for general guidance only and should not be taken as examples of what bond levels might actually be for individual service providers. The examples assume the absence of any other relevant factors apart from those described.

Example A
A new small tarot service provider a (rated average for award and breach history). Bond level in the region of £6,000.

Example B

A medium size chat service provider with an above average award and breach history. Bond level in the region of £32,000.

Example C
A large chat provider with no award history and average breach history. Bond level in the region of £11,000.

C. THE FUND

What is the Compensation Fund?

Although ICSTIS will try to ensure that the bond will be sufficiently large to meet all claims for compensation made during the 12 month period after the service provider has ceased to operate live services, this might not happen. In order to ensure that claimants will be paid, the Compensation Scheme is underwritten by the Fund. The Fund is managed by independent trustees. All live service providers must contribute to the Fund before they can begin operation. This contribution should be regarded as being effectively non-returnable.

The initial contribution to the Fund will be £7,500. In addition, further contributions may be required to be made into the Fund if the level of unmet awards drain the fund.

D. STARTING UP

Service providers who want to start operating live services must:

You will be able to begin operation once:

  • ICSTIS has received the bond deed, and
  • has been notified by the Trustees that you have signed a standard contract with the Trustees of the Fund and paid the joining fee.
  • For more details about the Fund please contact:

    Anthony Price
    The Trustees of the Live Conversation Service Providers' Compensation Fund
    54 Telford Avenue
    London SW2 4XF
    Tel/Fax: 0181 671 9161