BIBA Furious At New FSCS Rules

by Stewart Douglas

Story link: BIBA Furious At New FSCS Rules

Leading insurance organisation BIBA has today suggested that its members, comprising of a number of high profile national insurance brokers, could be expected to prop up some of the costs associated with compensation payments if troubled bank Northern Rock were to become insolvent, according to provisions under the Financial Services Compensation Scheme.

The British Insurance Brokers’ Association said today that rules under new FSCS arrangements could see brokers supporting almost £200 million of compensation payments for customers of Northern Rock if the precariously positioned bank were to fully collapse before a suitor could be found and proven successful in any bid.

The move follows confirmation from regulator the Financial Services Authority last week that the Financial Services Compensation Scheme would be extended to provide up to £4 billion per year in compensation and damages payments, of which insurance intermediaries would be required to collective pay an increased proportion.

BIBA has today criticised the arrangement for placing too much of a financial burden on insurance brokers as compared to insurance companies who undoubtedly have a move significant role to play financially. It was also suggested that the level of risk arising from the possibility of a broker collapsing giving rise to compensation payments was minimal in comparison to certain others within the financial services industries.

Additionally new provisions that will see a collective sub-divided fall back fund will require insurance intermediaries to up their contribution to the pool overall for financial services compensation payments.

The compensation funds only become relevant when customers of a failed institution lose money. Part of the argument lies in the unlikeliness of a broker to go under at the expense of customers, which should render its exposure to the relevant schemes lesser. However there is now to be a proportionate increase in the amount contributed by brokers, which BIBA has today found so objectable.