Insurance products for UK residents

FSCS Levies and Insurance Broking

The increase in levies imposed by the FSCS will have a severe impact on the smaller insurance broker - such as B Portwood & Co Ltd. As a small broker we have existed by giving advice to our customers that want it and making a point of not mis-selling products to our customers. Overall we feel that we have made a sound contribution to the well-being of our customers.

Unfortunately there are many businesses, which sell insurance, where the whole essence of the business is to sell products regardless of their suitability. Although some of the excesses have been reduced since the FSA took over in 2005 there are still rogue companies about who overcharge when they can get away with it, sell additional products by inertia and don't (even though customers think they do) advise on suitability of contracts.

How does this affect us? Well if those companies are in business then they have to pay compensation to people when the FOS decides that they should (see article on travel insurance mis-selling). This will be covered usually by either the company's own resources or by their professional indemnity insurance.

However one or two companies mis-sold PPI insurance and then have gone into liquidation. This means that they cannot pay out compensation to all the individuals that they have mis-sold. The result is that the FSCS steps in to pay the compensation out in stead - and they make up the costs of this compensation by imposing a levy on all companies in the same class of business.

Regrettably PPI is an insurance-related product and was mis-sold by an intermediary. So all compensation comes out of the insurance mediation pot - despite the fact that most small insurance intermediaries have never sold a PPI policy in their lives and those that do (we sell mortgage payment protection insurance for accident, sickness and redundancy) ensure that if someone wants it, they will be advised as to the suitability of the contract.

It is tough being an insurance broker - especially one in the personal lines business - many ex customers think they know more about insurance than they do and buy unsuitable products online, business costs are rising and margins are being squeezed. This is yet another straw on the camel's back.

For more information contact JB Portwood

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