Broker FSCS levy jumps 15% to £62m for 2014/15

The Financial Services Compensation Scheme (FSCS) expects to charge general insurance brokers a levy of £62m for the 2014/2015 financial year.

This is a 14.8% increase on the £54m brokers paid in 2003/2014.

The news comes a week after Biba hit out at high FSCS levies in its 2014 manifesto, saying they were stunting brokers’ growth and investment.

The FSCS settles claims on behalf of financial services companies that are financially unable to do so, and levies all financial services firms to pay for this.

The main driver of the general insurance broker FSCS levy is payment protection insurance (PPI claims). The FSCS is expecting 16,128 new PPI claims in 2014/2015, compared with the 13,545 it estimated for the previous year.

Biba argues that general insurance brokers should not have to pay for rising PPI because PPI was typically not sold by ‘pure’ general insurance brokers – those that sell insurance as their main business.

General insurance drop

The story was different for general insurers. Their levy will decrease 37.4% to £72m in 2014/2015 from £115m in 2013/2014.

This is despite an expected increase in compensation costs. The FSCS expects to see an increased number of noise-induced hearing loss and mesothelioma claims against the estates of failed insurers Chester Street, Builders Accident Insurance and Independent Insurance.

The FSCS added it will also see claims arise from the defaults in 2012/2013 of Municipal Mutual, and Lemma Insurance Europe, as well as Millburn Insurance Company, which failed in December 2013.

It added that the costs from the Millburn default are not yet clear.

Overall, the FSCS expects to charge charge financial services firms £313m for 2014/2015, up 9.8% on the £285m it charged in 2013/2014.

This is the first year the FSCS has used its 36-month funding approach.

FSCS chief executive Mark Neale said: “Our mission is to provide a responsive, well-understood and efficient compensation scheme for customers of financial services, which raises public confidence in the industry.

“2014/15 marks the first time we will calculate the annual levy with our new 36-month funding approach – an approach we believe will go some way to reducing volatility of annual levies and provide the industry with greater certainty.

“This year will also see FSCS continue to modernise its claims process, enabling consumers to engage with us online. This will deliver a better service for consumers and improved efficiency for levy payers.”