The Financial Services Compensation Scheme (FSCS) and the Financial Services Authority (FSA) will share information so they can prepare for potential insurance collapses.

The Association of British Insurers (ABI) has welcomed the development, which it said could save the industry money by pre-empting mishaps.

FSCS chief executive Suzanne McCarthy told Insurance Times the organisation would foster a closer relationship with the FSA than its predecessor.

McCarthy said: "We talk to each other and, if we saw something happening, we'd tell them and they'd keep us informed.

"It's important we have a good relationship over there, and we do. And they have a good relationship with us."

An FSA spokesman said the discussions were about industry trends rather than individual firms.

He said the FSA had tried to form a similar relationship with the Policyholders' Protection Board (PPB), but was less successful.

An ABI spokesman said the plan was "very sensible".

He added: "After all, this scheme is funded by the industry so it's always helpful for them to be close touch."

McCarthy was speaking less than a week before the N2 deadline of November 30 - a date unlikely to be

forgotten, as all FSCS computers display an onscreen countdown clock.

The FSCS was created under the Financial Services and Markets Act 2000.

It will replace eight government compensation schemes, including the PPB.

Instead of the PPB levy, insurers will pay up to 0.8% of their net premium income every year.

McCarthy said she could not predict whether insurers would be asked to pay the full amount in the first year of the FSCS.

"The message out to the industry is we'll be looking at how much is received from the PPB in comparison to how much we have to pay out," she said.

"It's possible there may be a levy.

We'll keep that under review. If it happens, it will be sooner rather than later."

The PPB most recently levied the industry in 1994 and was due to levy again this year. However, it was called off, because legally the PPB is not able to levy for future costs incurred by the FSCS.

McCarthy said as the levy funds would be strictly divided into life and general, general insurance money could not be used to pay out life insurance compensation.

She said she had met ABI chief executive Mary Francis at least twice and that

FSCS insurance manager Duncan Mackenzie talked to ABI insurance manager John Parker on a regular basis.

Both McCarthy and Francis have extensive civil service histories, including stints at the Treasury.

"The message across the board is one of welcoming change," McCarthy said.

"There's a view that what's happened in the past has been built around historic precedent and this is a good time to move forward."