Insurers face £50m FSA bill

Insurers will be hit with a one-off cost of £50m if the FSA's proposal to treat commercial clients with turnover of less than £1m as private customers is adopted, according to ABI estimates.

They will also face ongoing costs of £18m to £20m a year.

The figures were calculated by the ABI's regulatory working party after the FSA asked it to quantify its concerns with the proposal, outlined in CP160: Insurance selling and administration.

One source said: "Insurers said any costs involved will be passed on to consumers in the form of higher premiums. So the FSA has come back and said that unless the industry can quantify the costs, it intends to introduce it as it has outlined."

An ABI spokesman said the figures were "very rough estimates" due to the lack of detail from the FSA on exactly what the proposal will comprise.

The bulk of the costs are expected to flow from changes to administration and systems needed to deal with the proposal, which, if implemented, will mean the reclassification of about 3.7 million companies, or 97% of the UK's businesses.

The proposal will also be extremely costly to brokers because of the need to establish turnover and supply policy documentation to potential clients before they commit to buying a policy.

But Biba regulatory working party chairman Chris Arter said the FSA had not asked Biba to quantify the cost of the proposal to brokers.

"We've obviously said that there would be a cost anticipated and that would be as a result of changing systems," Arter said.

Both the ABI and Biba expressed significant concerns about the proposal in their responses to CP160.

The ABI said all commercial customers should be treated as non-private customers and warned the FSA that the proposal could affect the cost and availability of cover.

In its response, Biba said the proposal would be administratively "difficult and costly" to brokers.