FSCS - what would Darwin say?

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Martin_ed_pic_NEW_0710 small.JPGIt seems that there isn't a day goes by without someone mentioning the FSCS and its dreaded levies. And quite right too as it has put many brokers under unnecessary, added pressure. There have even been suggestions that the burden of the levies will force some brokers out of business. It is alarming that an arbitrary accounting decision made somewhere in Canary Wharf can have such a devastating impact on the insurance broking community.

But it got me thinking about the market and its forces. Will this cost, which roughly speaking is calculated as a percentage of eligible business, simply force some of the underperforming brokers out of the business? If a broker cannot survive and trade in what is now reality, surely their demise is simple natural selection?

Regardless of how that environment has been created, we need to accept that it is not going to change any time soon. The FSA shows no appetite for conducting a review of the way the FSCS administers its levies so it looks like we are stuck with it as it is.

But is it fair to talk about natural selection when the business environment we live in has been fundamentally, but artificially, altered? It seems to me that the rules have changed overnight and a lot of brokers have, understandably, been caught short.

I don't know. I'm caught in two minds about this one to be honest. On one side I think that if a business cannot survive in the environment it operates in, then that's, well, too bad really. But on the other hand the FSCS levies, that have pushed many to the brink, are not a natural result of the broking market and how it behaves. Fundamentally though we have to reluctantly accept that we are not going to see the back of these fees for the next couple of years at least and that some brokers may go out of business as a result.

The big question I suppose is what impact that will have on the wider market. Will it rid us of businesses that are not fit for purpose or will it in fact draw the life blood out of the industry?

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