OPINION 15 Picking up the


pieces for something they did not break…


Insurance brokers will now be receiving notification of the regulatory fees which they are required to pay to the Financial Services Authority (FSA) this year. I would expect that almost all will not have failed to notice that fees have increased substantially - and indeed, by far more than the cost of inflation.


The reason for this is that the FSA allocates its regulatory fee charges according to fee blocks, in other words, groupings of regulated businesses which are transacting similar types of business.


Mis-selling of payment protection insurance by


other parties has been bad news for brokers, who are now poised to take a big


hit on their regulatory fees. Andrew Welch, head of insurance at Stephensons


Solicitors, argues that this is frankly unfair


However, general insurance brokers are in the same block and assessed in the same way as those who have sold high volumes of payment protection insurance (PPI).


It might be thought that those companies whose main business of selling mortgage or life products might present a higher risk then general insurance brokers, but because the brokers are in with those selling PPI they are part of the PPI pool. And, this class of business is now presenting the FSA with a least as many headaches as other potentially higher risk products, such as life.


No one can have failed to notice the amount of advertising currently going on which is designed to drum up allegedly mis-sold PPI claims. Typically those claims are unearthed by claims management companies who either themselves, or via panel solicitors, pursue claims for reimbursement through the Financial Ombudsman Scheme. Or, where the company which sold the PPI is no longer in business, the claims are dealt with under the Financial Services Compensation Scheme which is again


funded by the FSA. Either way, the cost of handling these claims is substantial and is unlikely to decrease in the immediate future.


The volume can be illustrated by the record £7 million fine handed out by the FSA to the Alliance & Leicester in 2008, as a result of alleged non compliant sales in part of a book of approximately 210,000 PPI policies.


Swinton was also fined £775,000 for serious failings in their advice about sales of single premium payment protection insurance and a number of sales related to their 350,000 customer book of PPI business.


It is thought that the sales of PPI which the FSA could have to review, run into the hundred thousands and possibly millions of policies - with the consequent high complaints handling and compensation costs.


As I see it, sadly general insurance brokers who may have had nothing to do with the sales of PPI policies and did not make a penny in profit out of that business are now finding themselves lumbered with the ‘clean up’ costs. This is hardly an example of ‘polluter-pays’ regulation and would seem to represent an injustice to those brokers.


Professional bodies such as BIBA are taking the matter up with the FSA but it looks to be the case that there will be nothing which will affect this year’s levy that is now payable and what happens next year remains to be seen, although the PPI claims handling costs are likely to continue running high while there is an industry dedicated to farming those claims.


July/August 2010 Insurance Brokers’ Monthly


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