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BIBA : alternative FSCS funding model to FSA

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The British Insurance Brokers’ Association (BIBA) has proposed an alternative fairer structure for the Financial Services Compensation Scheme (FSCS) funding model, which has been produced on its behalf by consultants Oxera.  BIBA suggests an alternative structure, which includes a separate sub-class for ‘pure’ insurance brokers, and retains insurers in the cross subsidy part of the model to ensure greater responsibility for their products and the way they are sold.

In its consultation response to the Financial Services Authority (FSA), BIBA outlined its alternative fairer model for brokers which is economically justified and sustainable. It also retains insurers’ financial responsibility for the mis-selling of their products and provides a solution for the FSA to indentify ‘pure’ insurance brokers by looking at a firms permissions, their regulated income and their total number of insurance sales.

BIBA’s response included an economic analysis of FSCS funding by the insurance intermediary sub-class and also incorporated the work that BIBA commissioned Beachcroft LLP to conduct, in order to identify a legal definition of a ‘pure’ insurance broker.

Achieving a sub class for ‘pure’ insurance brokers would mean that brokers are ring fenced from other intermediaries such as credit brokers whose payment protection insurance failures have led to increased fees for brokers over recent years.

Eric Galbraith, BIBA’s Chief Executive, said:”It is essential to look for separation for brokers and we have worked with Oxera to produce a viable solution.  I’m very disappointed that the FSA’s revised proposed structure is yet again unacceptable and that they have based their suggestion on ability to pay rather than the fairness of the scheme. We will continue to work with the FSA to achieve a fairer and more workable solution.”

Steve White, BIBA’s Head of Compliance and Training, added: “We are confident that our solution is workable and achievable for the FSA. It means that they will have to collect some additional information from intermediaries as part of their data collection process but it is a fair and economically justifiable solution.”

Responding to FSA consultation CP12/16 – FSCS funding model review, BIBA outlined brokers’ significant contribution of 1% to GDP and said that this should entitle insurance brokers to a more tailored approach including their own sub-class.  BIBA also said that the suggested structure put forward in the review creates unnatural and unequal cross-subsidies where insurance brokers are exposed to possible failures in the IFA sector and it takes insurers away from their responsibility for product sales on intermediated business.

Oxera was commissioned by BIBA because of its knowledge and experience of the FSCS through its work in establishing the current funding model for the Financial Services Authority.