FSA to overhaul compensation limits

The Financial Services Authority has confirmed it is going ahead with proposed changes to the compensation limits for insurance, investment and home finance advice business in the event of a firm failing.

The FSA said it is designed to achieve greater simplicity and consistency in the Financial Services Compensation Scheme (FSCS).

Jon Pain, managing director of retail markets at the FSA, said: "The changes will help consumers understand and have confidence in the protection provided by the FSCS. In particular it removes the current potentially confusing provisions under which some parts of a claim can be paid out at 100% and other parts at 90%."

The changes, which come into effect from 1 January 2010, mean the compensation limit for investments, home finance advice and deposits will be the same at £50,000 and all claims for non-compulsory insurance will be paid at 90%, with no upper limit.

Key facts

• Non-compulsory insurance provision (both general and life insurance): protection for 90% of the claim, with no upper limit (currently 100% of the first £2,000 and 90% of the remainder, with no upper limit).
• Mediation of non-compulsory general insurance and pure protection contracts (term, critical illness and income protection insurance): protection for 90% of the claim, with no upper limit (currently 100% of the first £2,000 and 90% of the remainder, with no upper limit).
• There will be no change to compulsory insurance, such as motor third party and employers' liability insurance, including mediation. This will remain at 100% protection with no upper limit.