The Financial Services Compensation Scheme (FSCS) has admitted that matters concerning industry levies are in need of a re-look – a pronouncement that British Insurance Brokers’ Association (BIBA) executive director Graeme Trudgill (pictured) is happy about.
“The retail pool in particular is leading to calls for change from industry and trade bodies,” said FSCS in its The balancing act of compensation report. “BIBA’s 2022 Manifesto makes this point clear when it states, ‘The regulatory framework should never allow for a demand of many hundreds of percent of their actual levy requirement to be made on firms that are well managed, low risk, and are not connected to the polluting sector’.
“BIBA’s members primarily pay levies in the general insurance distribution class. This class is particularly impacted when contributions to the retail pool are required. For example, the total levy for this class was £12 million in 2019/20 but rose sharply to £41 million in 2020/21 – £29 million of which was a contribution to the retail pool. This contribution mainly covered compensation for customers of firms who dealt with investments and pensions advice, not failed brokers or insurers.”
Commenting, Trudgill shared on LinkedIn that he was “really pleased” to see the BIBA Manifesto cited.
“FSCS believes that the concept of a retail pool remains valid,” the 18-page paper went on to read. “There must be a mechanism for compensation costs to be covered when it becomes unaffordable for a single class to pay, and as the industry as a whole benefits from the confidence and stability FSCS protection adds to the market, it is appropriate that it continues in some form.
“However, we do believe it is being called upon too often, and we acknowledge that how these costs are shared among the industry needs further consideration.”
Meanwhile, Trudgill added: “BIBA members will also be particularly pleased that the FSCS is now forecasting a £5.3 million levy instead of a £68 million levy for our sector (as had been indicated previously).”
Source: FSCS
In its levy update, FSCS noted that the annual levy for 2022/23 now stands at £625 million. The figure is lower than the £900 million indicative levy forecast that was published last November. Additionally, the amount represents a decrease from 2021/22’s final levy worth £717 million.
“Although the levy forecast has decreased, we still expect compensation costs in 2022/23 to be higher than for 2021/22,” stated FSCS. “We will publish final figures for 2021/22 in our annual Report in the summer.
“A retail pool levy will not be required in 2022/23 as we no longer expect the life distribution & investment intermediation (LDII) class to breach its annual levy limit and require additional funding.”
Separately, the Personal Investment Management & Financial Advice Association (PIMFA) also welcomed the announcement.
“We are pleased to see that the annual levy for the coming year has significantly decreased from what was forecast late last year,” declared PIMFA public affairs head Simon Harrington. “While this represents a significant reprieve for firms, we are cognisant of the fact that we will continue to see increases in the levy as harm works its way through the system.
“We have consistently argued that the government should give consideration to the use of FCA (Financial Conduct Authority) fines to help subsidise the levy, which would represent a 90% contribution to the levy this year and is the purest distillation of the polluter pays model. Doing so would represent a significant show of solidarity to an industry which feels not enough have been done to bring the cost of the FSCS levy under control.”
