Failed payment protection provider had less than £1m of assets for creditors
The Financial Services Compensation Scheme faces up to £50m of claims from customers of payment protection insurance (PPI) insurance provider Wilmslow Financial Services, which went bust in May.
In the week that Insurance Times marks the first anniversary of its Fair Fees campaign (see p14), Companies House filings show that the company owed £50m worth of PPI claims liabilities when it went into administration. The Cheshire-based company’s failure means the claims are likely to have to be picked up by the FSCS.
Wilmslow, which sold PPI products alongside loans and mortgages it arranged for clients, had just £873,435 worth of assets available for creditors, administrators MCR estimated.
The FSCS said it would publish an update on Wilmslow as soon as more information is available.
According to Financial Ombudsman Service statistics, Wilmslow was the subject of 198 general insurance complaints in the last six months of 2010, making it one of the 40 most complained about general insurance companies.
Institute of Insurance Brokers chief executive Barbara Bradshaw said that the scale of the Wilmslow claims underlined the need for the FSA to accelerate its review of the FSCS.
The IIB presented figures to a meeting of the all-party parliamentary group on insurance and financial services last week showing that brokers were paying nearly 10 times as much in levies to the FSCS as they were two years ago. This breakdown shows that a firm with a turnover of £5m is paying approximately £58,000 a year to the FSCS – a 973% increase on the level of the levy in 2009/10.
Meanwhile, the establishment of the proposed new financial conduct regulator is likely to result in bigger bills for insurance companies, Insurance Times analysis shows.
FSA chief executive Hector Sants said in a recent speech that the more “intrusive” approach to conduct, proposed by the government in last month’s financial services regulation white paper, would require more resources than his organisation’s existing regime.
He said that introducing annual visits for the 24,000 regulated financial services firms, which are not currently inspected on such a regular basis, would require the Financial Conduct Authority to raise an additional £200m a year.
Public affairs consultancy Lanson director Richard Hobbs estimates that the FSA currently spends three quarters of its £500m annual budget on financial conduct regulation.
An extra £200m would wipe out any savings brokers might have expected to receive as a result of no longer having to help pay for the prudential regulation of banks and insurers under the government’s post-FSA regime. Under the government’s plan, the FSA will be split into two new bodies – the FCA and the Prudential Regulation Authority. “We are looking at a substantial increase,” said Hobbs.
Biba’s head of compliance and training, Steve White, said: “There’s no way that we are going to vote for an increase in fees.”
“There is no downward pressure on costs,” he continued, adding that there was currently no political will to rein in the regulation costs.
Bradshaw said that the relatively low level of risk posed by GI brokers meant they did not require the same level of supervision as other types of financial services firms.
The Insurance Times Fair Fees petition has been signed so far by 457 insurance professionals, representing 356 different firms from across the sector.
The campaign, which has been running for a year, seeks to:
- ensure that brokers’ FSA fees and levies are proportional to the risks they bear;
- ring-fence professional insurance brokers from the rest of the financial services sector when establishing the new framework for the Financial Services Compensation Scheme;
- exclude the mis-selling of PPI from the compensation pot for professional brokers;
- accelerate the FSA’s review of the FSCS.
We say …
? The size of the Wilmslow compensation bill reinforces the urgency of the need for a review of brokers’ fees and levies, which have spiralled in recent years.
? Insurance Times’s Fair Fees campaign calls on the FSA to give brokers a fairer deal by carrying out a fundamental review of its fees and levies. This should happen immediately – there is no need to wait for Brussels.
Pass notes: Financial Conduct Authority
What is the Financial Conduct Authority?
It is one of two new agencies which are being set up as a result of the government’s decision to scrap the FSA. The new system has already been dubbed the “twin peaks” system of financial regulation.
What will the FCA do?
As the name says on the tin, it will focus on the financial conduct of all financial services firms, including Lloyd’s and its agents. It will also oversee the prudential regulation of firms that do not fall under the umbrella of the Prudential Regulation Authority, including insurance brokers, and have a remit for countering financial crime.
How will the FCA’s approach differ from the FSA?
The FCA will step in earlier to nip in the bud problems with the design or sale of financial services products. It will also be prepared to make greater use of its enforcement powers than the FSA.
Why is it taking this early intervention approach?
The FSA was heavily criticised for its failure to act faster to curb the problems with mis-selling of payment protection insurance. The new approach is designed to ensure that it does not allow a similar problem to spiral out of control again.