Trade body suggests ringfencing pure insurance brokers
Biba has sent the Financial Services Authority (FSA) its suggestions for a fairer funding model for the Financial Services Compensation Scheme (FSCS) to try to get a fairer deal for brokers.
The current funding model for the FSCS has been criticised by Biba and brokers for being unfair by charging insurance intermediaries higher and higher levies over recent years.
Biba and their consultants Oxera have suggested that the FSCS funding model should keep pure insurance brokers separate from other financial sectors, but include insurers in the current cross-subsidy structure to ensure greater responsibility for the way policies are made and sold.
Achieving an FSCS sub-class for insurance brokers would mean they are ringfenced from other intermediaries such as credit brokers, whose payment protection insurance failures have led to increased fees for insurance brokers over recent years.
The broking trade body has appointed law firm DAC Beachcroft to come up with a legal definition of a pure insurance broker, as this has never been written. This would solve the FSA’s objection that siloing off insurance brokers in the FSCS is difficult due to the lack of a legal definition.
The trade body gave the suggestions to the regulator in response to the FSA’s consultation on the FSCS, which has just closed.
Biba chief executive Eric Galbraith said: “It is essential to look for separation for brokers and we have worked with Oxera to produce a viable solution. I’m very disappointed that the FSA’s revised proposed structure is yet again unacceptable and that they have based their suggestion on ability to pay rather than the fairness of the scheme. We will continue to work with the FSA to achieve a fairer and more workable solution.”
Biba head of compliance and training Steve White said: “We are confident that our solution is workable and achievable for the FSA. It means that they will have to collect some additional information from intermediaries as part of their data collection process but it is a fair and economically justifiable solution.”
Responding to the FSA consultation, Biba said that as brokers contribute 1% to GDP they would be entitled to their own sub-class. The trade body also said that the FSA’s suggested structure creates unnatural and unequal cross-subsidies where insurance brokers are exposed to possible failures in the IFA sector.