But for insurers they will have to pay 44% more towards the scheme’s running costs

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Insurance brokers could see the amount they pay for the running of the Financial Services Compensation Scheme (FSCS) drop by half under new proposals.

The charge, known as the management expenses levy limit, covers the cost of running the scheme and not the compensation it pays out, which is covered by a separate charge.

Brokers are expected to contribute £6.6m to the total amount of £48m in specific running costs for the 2015/2016 financial year, according to a consultation paper published by the FCA today.

This is a 50.4% reduction on the £13.5m brokers paid last year towards the £58.2m that was charged to all authorised firms.

The proposed changes mean brokers will pay just 14% of the scheme’s specific running costs, down from 23.2% in 2014/2015.

Insurers to pay more

By contrast insurers will see the amount they pay towards specific FSCS running costs increase by 44% to £7.2m in 2015/2016 from the £5m they paid in 2014/2015.

Their share of the total has risen to 15% from 8.6% in 2014/2015.

The total levy that is expected to be charged out to all firms will be £74m – a 7.5% reduction on the £80m it charged in 2014/2015.

The amount is made up of the £48m specific costs, base costs of £21.1m, which are evenly shared by the eight company categories that pay towards the management of the FSCS, plus a £5m contingency reserve.

Specific costs include the costs of assessing claims and making payments relating to a particular funding class, while the base costs relate to the general running costs of the FSCS.

The consultation on the management expenses levy limit will be open for four weeks.

Cost breakdown

·         FSCS management expenses of £69.1m: it covers staff and building costs, on-going operating expenses, IT, outsourcing and claims handling, legal or other professional services and strategic programmes.

·         A contingency reserve of £5.3m: this allows the FSCS to levy additional funds for management expenses at relatively short notice to meet contingencies that were not foreseen when the annual levy was raised. The proposed contingency is unchanged from 2014/15, and would not be levied unless required by the FSCS.

Subject to FCA and PRA approval the new rules will come into force from 1 April, while invoices will be sent out from July.

Stakeholders now have until 16 February 2015 to respond to the consultation.

FSCS management levy specific costs paid

 Specific costs (£m)Specific costs (£m)Change (%)
General insurance provision7.25.044.0
Life and pension provision0.30.250.0
General insurance intermediation6.713.5-50.4
Life and pension intermediation5.53.844.7
Investment provision0.30.250.0
Investment intermediation12.414.9-16.8
Home finance intermediation0.81.1-27.3
Specific costs total48.058.2-17.5
Management expenses total69.174.7-7.5


Share of total specific costs

 Share of total specific costs (%)Share of total specific costs (%)Change (points)
General insurance provision15.08.66.4
Life and pension provision0.60.30.3
General insurance intermediation14.023.2-9.2
Life and pension intermediation11.56.54.9
Investment provision0.60.30.3
Investment intermediation25.825.60.2
Home finance intermediation1.71.9-0.2

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