Trade body says brokers paid by credit card lose out when insurer goes bust

The Institute of Insurance Brokers (IIB) is lobbying government to change legislation which it claims leaves brokers that accept credit card payments unfairly exposed to millions of pounds in potential losses.

According to the IIB, the Consumer Credit Act and the Policyholders' Protection Act need to be amended because they discriminate against brokers in the event of the collapse of an insurer, as with Independent Insurance.

If a policyholder has paid a broker by credit card and the insurer subsequently goes bust, the policyholder is entitled to claim back the premium from their credit card provider, leaving the broker to pick up the tab.

But the policyholder would also be eligible to claim their losses back from the Financial Services Compensation Scheme (FSCS), which affected brokers are not.

Credit card payments are believed to constitute around a quarter of all premiums for personal lines policies.

Andrew Paddick, director general of the IIB, said: "This is a very serious issue that threatens to force some brokers into liquidation.

"The FSCS has left brokers high and dry by recommending to policyholders they claim losses back from their credit card provider when there is no similar recourse available to the broker."

The IIB is now conducting a survey of its members to ascertain the extent of exposure facing brokers in the event of another insurer collapse. The body intends to present its findings to the FSA in support of its demands.

Robin Belsom, director at Ipswich-based Ryan Insurance Group, said: "I have practical experience after Independent and it is a real concern.

"Around 20% of our personal lines business is paid for by credit card, so refusing to accept credit card payments would be commercially disastrous."

A spokesperson for the FSCS said: "Although the FSCS is sympathetic to the position of brokers, whether they are liable for costs reclaimed by policyholders is a matter for credit card issuers and the brokers, and is subject to the commercial agreements between them."

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