Editor Katie Scott discusses brokers’ financial tight spot - escalating FSCS levy costs partnered with pandemic and Brexit uncertainty leaves many businesses between a rock and a hard place
Talk about kicking the industry when its down.
In January, the FCA revealed the results of a coronavirus-related financial resilience survey it conducted in 2020.
Garnering results from 19,000 financial services firms, the regulator announced that insurance intermediaries and brokers were among the lowest proportion of profitable financial services firms as at October 2020, with these businesses seeing a 30% decrease in available liquidity during the Covid-19 pandemic.
What’s more, the FCA additionally found that 4,000 financial services firms had low financial resilience and were at a heightened risk of failure – 30% of these companies were thought to have the potential to cause harm in failure too.
With such a bleak stage set, it is unsurprising that the upwards trajectory of FSCS levy costs has left general insurance brokers frustrated and wondering why their coffers should be emptied so dramatically for failings in other areas of the market – for example, the supplementary levy announced last November was designed to aid the life distribution and investment intermediation (LDII) class, yet the general insurance distribution class retail pool was originally ringfenced to provide £29m in support.
This does raise questions around the financial burden of compliance and whether it is the cost of regulation itself that will run brokers into the ground as opposed to the strange economic times we currently find ourselves in.
Biba certainly believes the “weight of regulatory fees” is a problem, as it highlighted the issue in its latest manifesto. Here, it said: “General Insurance brokers were asked to contribute a further £22m to the FSCS pot this year - 122% on top of the actual levy already applied.
“For the 2021/22 year, on top of the planned £14m, the demand will be a further £132m for the general retail pool.”
I have to agree with FSCS chairman Marshall Bailey – it’s time the industry got to grips with the root causes bumping up levy costs if brokers have any chance of regaining their financial footing in the years to come, especially following the implications of the pandemic and Brexit.
Brokers’ resilience continues to be sorely tested.
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