Biba’s plan could cut FSCS levies – but will the FSA listen?

The cost of brokers’ Financial Services Compensation Scheme (FSCS) levies have been a gripe for years, with costs spiralling almost tenfold between 2009/10 and 2011/12. The small fall in levies this year and the predicted fall for next year are cold comfort considering the scale of previous rises.

The reason brokers pay so much is that the FSCS cross-subsidises claims made in different areas of financial services, and insurance brokers have had to pay for the mis-selling of payment protection insurance by others, such as credit brokers.

The good news for brokers is that Biba has a plan that would sort the problem out and lead to lower fees for general insurance brokers.

In short, part of the plan would separate ‘pure’ general insurance brokers from other intermediaries as far as the levies are concerned, meaning the pure brokers would only pay for the FSCS claims from their own sector.

Biba has sent this solution to the FSA, which oversees the FSCS and which issued a consultation earlier in the year on its suggested changes to the levy scheme structure.

The suggested changes were not good news and showed that the FSA was still not listening to insurance brokers about the unfairness of the current scheme.

Biba has made its new proposals easy for the FSA to roll out, and has also paid law firm DAC Beachcroft to come up with a legal definition of an insurance broker. The FSA has used the previous lack of a definition as an excuse for not giving pure insurance brokers their own FSCS class, so Biba’s work will help.

So on the face of it, the trade body has worked up a fairer solution that would get general insurance brokers a better deal and be simple for the FSA to implement.

But will the FSA listen? Although FSA director, conduct policy Sheila Nicoll told Insurance Times that all parts of the FSCS structure were up for debate, the regulator has not shown a willingness to listen to brokers so far. Let’s hope Biba’s proposal is enticing enough to end the current inequality.