News analysis - FSCS: Outrage as FSCS bills rise

For the financial year 2010-11, the FSCS imposed a levy of £61.4m on general insurance, intermediation, an increase of 722% over 2009-10. While it was expected that there would be a large increase, few brokers budgeted for this level and there has been an outpouring of anger from them.

Since 2005, there has been a whole host of failures by companies selling payment protection insurance such as Picture Finance and Diamond Lifestyle, which are included within the 13,500 firms under the same compensation band devised by the Financial Services Compensation Scheme and the Financial Services Authority. Often, companies would sell unsecured loans - an activity not regulated by the FSA - then mis-sell PPI; they were then unable to pay compensation. The result has been thousands of people claiming back thousands of pounds each, leaving the FSCS needing to increase its fees for members.

Commenting on the dramatic increase in the FSCS bills, David Ottewill, director at Camberford Law, said: "This is double what we anticipated and we are an easy target." Ottewill hit out at industry bodies, saying: "It is just the strength of your lobbying group."

Andrew Welch, head of insurance at Stephensons Solicitors, said: "Sadly, general insurance brokers that might have had nothing to do with the sales of PPI policies and didn't make a penny in profit out of that business are now finding themselves lumbered with the clean-up costs; this is hardly an example of polluter-pays regulation and would seem to represent an injustice to those brokers."

Large fines
The PPI mis-selling scandal has resulted in up to 1,000 complaints a week being lodged with the Financial Ombudsman Service. Fines have included a £7m penalty handed down by the FSA to Alliance & Leicester in October 2008; there have been 21 other firms hit with financial punishments as well.

The complaints to the FOS, up 58% year on year and with a 89% success rate, represent only a small proportion compared to the overall number who complain to their banks, often only for the banks to then reject the claims. The broking sector has not been entirely immune to failings either. Swinton was fined £770,000 in October 2009 by the FSA for serious breaches after it implemented an "assumptive" sales technique and was forced to offer its customers compensation.

The British Insurance Brokers' Association warned brokers that FSCS fees were about to rise significantly, although not nearly as much as they eventually did, which has made chief executive officer Eric Galbraith angry. He said: "The cost of mis-selling PPI is that insurance brokers are facing 48-fold increases in their FSCS fees from two years ago. This proves that the structure of the compensation scheme is totally flawed."

Clearly all is not well at the FSCS and the Financial Ombudsman Service because their processes are under review, with Biba part of the FSA group in charge. The new Consumer Protection and Markets Authority will be in charge of both bodies. As Biba asks once again for general insurance brokers to be separated from other intermediaries within the FSCS levy categories, brokers should make their voices heard.

Biba advice
Steve White, head of compliance at the British Insurance Brokers' Association, offered his advice.
• Make sure you are not being overcharged by checking section J of your RMAR and ensure that your submission is tailored to your income (see the Biba website for more details).
• When the Financial Services Authority issues a consulation paper later in November-December, respond to it.
• You might want to use details of your FSA fees and levies since 2005 and write to your local MP.

Source: Professional Broking – July/August 2010