Independence is vital if the professional insurance sector is to avoid the regulatory costs of the wider industry

Why is appropriate, risk-based regulation so difficult to achieve? The proposed Financial Services Compensation Scheme (FSCS) funding reforms seem to be one step forward and two back.

Consultation paper 12/16 proposes a huge hike in the annual threshold limit that the FSCS can levy against general insurance intermediaries, up from £195m to £300m. This threshold, they argue, strikes an appropriate balance between the competing demands of the funding need of each class and affordability to firms.

While this cap is the equivalent of 3.37% of subclass eligible income, down from 3.5%, do they know something we don’t? Have general insurance intermediaries suddenly become 50% more risky?

What is at the root of many of the regulatory issues in the intermediary sector? For one thing, there is no dedicated insurance regulator; second, the professional insurance sector is part of a wider group for whom insurance is not their main business. This has a bearing on interaction with the Financial Services Authority, Financial Conduct Authority, the Financial Ombudsman Service and the FSCS.

Finding a way to achieve legal separation from these firms is critical, but not easy. We need separation, we must promote our own professional standards and then stand on our own two feet to take our profession to the next level and avoid this compensation mire that the FSA calls the “middle ground”.