Health and protection advisers are being urged to engage with the Financial Conduct Authority (FCA) consultation on changes to the “unfair” funding of the Financial Services Compensation Scheme (FSCS).
Branko Bjelobaba, principal at consultancy Branko and regulation and compliance consultant to the Association of Medical Insurers and Intermediaries (AMII) emphasised this was a vital opportunity to redress the balance of the scheme.
In the latest update to the FSCS funding last month, it was revealed general insurance intermediaries, which include health and protection advisers, are expected to contribute an additional £50m to cover failures from investment and pension firms next year.
This is the biggest additional levy across the industry by far and is 7.5 times more than the entire £8.3m FSCS bill to cover the whole general insurance distribution sector.
In one silver lining insurance advisers did manage to avoid a £61m levy this year as failures within the other sectors were lower than predicted.
Earlier this year, prompted by a question from Health & Protection, the FCA admitted the funding mechanism was affected by legacy issues and would be consulting on changes.
It has since done so this week with its DP21/5 discussion paper which it said was “the start of a discussion with stakeholders on the compensation framework and the purpose, scope and funding of the FSCS”.
Health and protection advisers very low risk
Bjelobaba told Health & Protection the unfairness of the compensation regime in the general insurance sector has “long been” felt, especially when advisers have been regularly asked to contribute to compensation due to the faults of other parts of the financial services sector.
“This review is now welcome and the industry should engage with it,” Bjelobaba (pictured) said.
“Advisers in health and protection provide a great deal of safety to their clients in any event – should they fail the insurance contract remains valid and claims can still be made and no client monies are generally held as all premiums are collected by insurers so there is no chance for advisers to abscond with these monies.
“As such they are very low risk and for them to have to shoulder beyond a fair share of industry compensation is unfair and inequitable and one can only hope that this is understood and acted upon by the FCA.”
The consultation remains open until 4 March and the FCA will also be engaging stakeholders during the first three months of 2022, with a feedback statement to be published after.