FSCS levy reduction hides long-term claims problem

The cut in this year’s Financial Services Compensation Scheme (FSCS) levy brings welcome relief for brokers, but is not the end of the story.

The FSCS’s final budget for 2011/12, unveiled last week, sets a general insurance intermediary levy of £69.5m – a big reduction on the £93.5m figure in February’s draft budget. It means brokers face a 16% rise on this year’s levy, not 56%.

The FSCS said the levy is being scaled back because it assumes it will pay out on 13,400 claims against insurance intermediaries in the coming year, rather than the 20,000 underpinning the draft budget. The new figure is based on current claims volumes, which “suggests the increase is less steep than previously assumed”, it said.

But according to the FSCS financial plan, “volumes of PPI claims continue to increase significantly”.

Biba head of training and compliance Steve White said the reduction in this year’s planned levy may reflect claims taking longer to process than anticipated. If so, any claims not paid this year will be added to future levies, increasing the need for a far-reaching review of the scheme.

White said: “In the long term, it is clear the numbers are going to go up. There’s a tsunami coming; it’s just a question of whether we can get out of its way before it comes ashore.”