Fair Fees: Brokers won't pay for banks

At Insurance Times, we’ve long known that FSA fees and levies are a hot topic. But even we’ve been taken aback by the strength of feedback sparked a fortnight ago when editor-in-chief Tom Broughton invited you to send in details of your fee hikes. We’ve since been deluged by letters from professional brokers, expressing their outrage at the scale of the increases.

The biggest hikes have been eight-fold increases for the FSCS (Financial Services Compensation Scheme), largely as a result of compensation for mis-sold payment protection insurance (PPI) policies that the FSA has decided general insurance brokers are also liable for. The latest increase follows a six-fold rise in 2009-10.

In addition, the authority has doubled its minimum annual fee for general insurance brokers to £1,000, a big blow to smaller outfits.

Your outrage has prompted us to launch an Insurance Times campaign: ‘Fair Fees: Brokers won’t pay for banks’. We shall lobby for fair treatment of brokers when the FSA reviews its fee and levy structures later this year.

And we shall call on the FSA, when it publishes its draft proposals for a review of the FSCS, to consult on:

• ring fencing professional insurance brokers from the rest of the financial services sector when establishing the new framework for the FSCS;

• excluding the mis-selling of payment protection insurance from the compensation scheme for professional brokers;

• ensuring that the fees and levies paid by brokers are proportional to the risks they bear; and

• protecting professional brokers from having to pick up the tab for the failures of the banking sector.

Here we publish a selection of your views, but you can see them all if you click on the ‘Fair Fees’ button on the home page of insurancetimes.co.uk. Keep sending us your stories about what the fees and levy hike will mean for your business. And don’t forget to sign up to our campaign online.

Case study: 'We may go into the red'

For Barry Hailstone, the FSA’s fees and levy hike could be the straw that breaks the camel’s back.

The 70-year-old runs a part-time business on the Isle of Wight, providing a mixture of marine and professional indemnity insurance, and is about to launch a new policy offering cover to marine captains who find themselves in hot water abroad.

But the fees and levy hike makes that launch look more than a little shaky.

Hailstone has been billed for £1,125 – more than double last year’s demand for £517. To some that may not sound out of line. But set it against an annual income of £9,800, and it becomes a potentially crippling sum.

In his case, it’s not the Financial Services Compensation Scheme levy that is the real killer as his low turnover sets his annual contribution at a modest £105.65.

Instead, the bulk of the increase is accounted for by the near doubling of the FSA’s flat minimum fee, which has jumped up in line with the FSCS levy increase.

The hike means that he now faces having to fork out £925 just to be allowed to practise. And it means that a business that has ticked over with a modest profit, is likely to slip into loss.

“The higher running costs will put us in a position where we may go into the red. If we can’t cut back our other running costs, we will be in a catch-22 situation.”

And he has big question marks over how the FSA is spending its money, based on his recent attendance at an authority roadshow event in Kent.

“It was in a massive private hotel with its own golf course. I would not have expected such a salubrious place.” He counted more than 30 FSA staff at the event.

He argues that the hike runs counter to the government’s drive to encourage people to work beyond the statutory retirement age.

“The government says you can’t be forced to retire, but this is doing just that.”

Case study: ‘We’ve done nothing wrong’

Insurance Times’ coverage of the FSA fees hike has certainly hit home for Geoff Hunt, partner at David G Rickard & Co, based in Ashford, Middlesex.

With two partners and two part-time staff, the personal lines broker makes a small profit on an annual turnover of about £100,000.

But a significant chunk of this could be swallowed by the firm’s increased FSA bill. From £601 last year, it has shot up to £1,730.

“If the FSA continues down this road, we will not be here in five years,” Hunt says.

The hikes compound the pressures high street brokers face from direct trading and price comparison sites. “Most small brokers feel that this is a very difficult market.”

But what really rankles Hunt – and many others who have contacted Insurance Times – is the injustice of having to pick up the tab for the mis-selling of PPI. “If we had done something wrong, we wouldn’t mind paying,” he says.

Your letters

I am a small broker operating in North Yorkshire. Last year, I paid £581 to the FSA; this year they are asking for £1,759. I’ve spoken to them and they give me two reasons: one, the new minimum contribution is £1,000. Why? Two, there is a compensation scheme levy of about £800 for claims arising from the mis-selling of PPI insurance. I don’t sell PPI insurance, so why should I make any contribution, never mind such a high one?

I look forward to receiving some sort of credible explanation from the FSA. As it stands, i­t seems to be little more than a blatant attempt to price small firms like mine out of the market.

Andrew Bull

Andrew Bull Insurance Services, Knaresborough

We are a small family provincial broker that has served the local community for 25 years, concentrating on general insurance. We have never sold PPI insurance and fail to see why we should now be penalised for the greed and mis-selling of large financial institutions. If we were a united industry, we could take a leaf out of the French book and refuse to pay the charge ‘en masse’. The FSA could hardly close every broker down.

David Auden

Auden and Associates, Stockport

My invoice from the FSA has gone up from £500 to £1,814 in a year – or about 12% of income. My compliance company tells me that there is nothing I can do about it. These increases will take some firms over the threshold of whether it is worth staying in business. Is there anything you can do to help us?

John Baczkowski, senior partner

Argent Insurance Services, Ealing, London

We’re probably not unusual, but based on a 10% fall in income compared with last year, our total FSA fee is up 64% at more than £25,000, while the FSCS part is up 700%. Like so many others, we don’t sell PPI.

Mark Usher

Lexham Insurance Consultants, Diss, Norfolk

Last year, we paid the FSA an FSCS levy of £1,273.16. This year (on a fee income 96% of previous), we are being asked for £9,260.45. The reason? PPI compensation claims. According to the FSCS, it needs to fund compensation of £61.4m for the general insurance sector, of which £61m relates to PPI. My simple maths calculates that standard general insurance compensation is £400,000! The main point is that most high street brokers, like us, do not sell PPI; it is mainly sold by banks and building societies. I have tried to talk to the FSA through its contact centre, but they merely say that they only send out the invoice and the fees are set by the FSCS. However, I cannot question the FSCS as I am regulated by the FSA and they say that I must refer my query to the FSA – catch 22!

I read in Insurance Times that MP Jeremy Hunt has raised the issue with financial secretary to the Treasury Mark Hoban, but the reply is that the Treasury cannot comment on the FSCS because it is an operation issue for the FSA – catch 22 again!

We are a small local employer with 22 staff. I recently took on two school-leavers. But this £9,000 is not far short of the minimum wage for an 18-year-old and we have to question whether we can now afford to keep them both. Like many others, we are suffering from the recession, increased competition and a surfeit of red tape. Additional costs such as this are hard to bear.

Stuart Richardson, director

Robert Nott Insurance Brokers, Bexley, London

I was very surprised to receive a bill from the FSA for £2,312.04 – an increase of 400% on last year. I run a small company that supplies bonds (such as ABTA, ATOL) to the travel industry and employ two staff, one on a part-time basis. Our business was badly hit when the CAA decided to go for a levy on each passenger instead of full bonding (in April 2008) and, with increases like these levied on us by the FSA, we will find it hard to survive.

Kevin Standen, director

Wentworth Surety Ltd

Our contribution could be £4,500 for the coming year – up from £500-£600 last year. What justifies this increase as the general insurance sector has, by and large, been risk free for many years now and has not contributed in any way to the financial mess caused largely by the banking sector?

The new government largely believes in providing consumer choice through healthy competition, but this runs against that philosophy. Large increases such as this will force many small local brokers to sell up or close, resulting in less competition, less consumer choice and a much-reduced industry, devastated in the same way that independent financial advisers were in the 90s and early 2000s.

Craig McGowan

McGowan Corporate Solutions, Haslemere

We are a medium-sized firm of family brokers in Bournemouth specialising in personal lines, medium commercial and boat insurance. Our total fees have doubled from about £3,000 last year to £6,000 this year, due entirely to the compensation levy. We agree with others’ remarks about ring fencing, as surely the general private broking sector is less of a risk than other sectors. The current soft market and continuing competition from direct insurers has been having an adverse effect on our income and to have our contribution doubled in one fell swoop is unacceptable.

Bob Snelling

Bournemouth Insurance Group, Bournemouth

Like other brokers up and down the country, we have faced huge increases in our fees this year. If you try to ring up to discuss it with the FSA, they just fob you off with: “Please see section blah, blah on our website about calculation of fees, or send in an email”. The easy answer is for every broker in the UK to stop their direct debits. Then let’s see how they go about resolving the issue.

Richard Mikula

Topaz Insurance, Hornsey, London

All brokers must lobby their MPs today and ramp up the pressure. This is an attack on jobs and the important local service that many of us provide. I have not yet had my formal notice of the new FSA fees, but I understand that I will have to pay more than twice the amount I paid last year. I find it frustrating that as an owner-broker, working on my own, I have to pay for others under the FSA umbrella. I do not do pensions, financial products, mortgages, handle client money and so on. But I still have to pay for it.

Tony Buckingham

Buckingham insurance

I have today received an invoice from the FSA for a total of £3,049.37 compared with last year’s £500.‘Treating customers fairly’? I think not!

Tom Cooper

Coops Insurance Associates, Morden, London

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