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FCA looks at merging FSCS and PI bills


The FCA is discussing combining Financial Services Compensation Scheme protection with professional indemnity insurance as part of the FSCS funding review.

Personal Finance Society chief executive Keith Richards says one of the ideas being talked about is a potential centralised fund that advisers would pay in to instead of paying FSCS bills and PI insurance separately.

The centralised fund could address new exclusions and high excess charges, and would be large enough to cover all payments when firms are likely to go out of business.

Speaking to Money Marketing Richards says: “Combining both PI and FSCS protection under one combined centralised mechanism is one of the potential options that should be considered.

“From a PFS point of view we are not suggesting that one is better than another, but would expect a sensible review to a least consider them only to discount them if they are not appropriate.

“PI is like any insurance, you pay a premium to protect your clients and your business from a risk of failure…The difference with PI is policies are reviewed on an annual basis to see if they are over-exposed to certain markets.”

He says because PI cover is able to exclude certain risks or withdraw cover, that can expose an advice firm to failure should a complaint occur in a specific area.

Richards adds: “What the FSCS has realised with PI is it doesn’t work and could be exposing advice firms for future failure.

“One of the considerations about combining them into a centralised fund is that it builds up sufficient value to not only protect the advice firm but also the consumer…There would be no right of the central fund to review or change cover. It’s just a consideration of whether there are solutions that service the public interest and the advice sector’s.”


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Money Guidance CIC 24th November 2016 at 4:45 pm

    At least this should nicely swerve the new 12% IPT levy.

  2. I feel a big increase in adviser costs in the pipeline as a result..Changes like this always mean an excuse to extract added cost somewhere in the system

  3. The most effective manner to resolve this issiue is for the FCA to consult with specialist PI brokers to develop a minimum standard policy wording with insurers ,wishing quote PII, having to agree to the minimum terms . The ICAEW ( accountants ) RICS ( surveyors ) SIF ( solicitors) all mandate minimum standards a PI policy must meet wit insurers agreeing to the minimum terms if they wish to insure the PI – it’s works – it will work for advisers PI – simples !!!

  4. This is flawed because a firm has to go bust before the FSCS can consider a case, whereas a PI claim can be Mrs whilst still trading. So combining the PI and FSCS may not work

  5. The reason PI doesn’t work is that the FSCS keeps changing the goalposts. To have the FSCS involved in my PI is likely to be a total disaster & will lead to increasing costs.
    High excess & exclusions are for firms with a poor claims history or those selling high risk products, why would I want myself linked with this?

  6. DBs point is valid and FSCS doesn’t seem to be very effective at recovering from phoenixing or dare I say, fraudulent manoeuvres. We all know someone who’s done it!

    The claims made basis v past business reviews together with differences between FCA, FOS, FSCS and PI insurers are all the elephants in the room. FSCS and PI will still only sting those firms who pay for the polluters by being professional, prudent and putting their clients first.

  7. Blue Eyed Monster 24th November 2016 at 6:52 pm

    PI would work – if we could ditch the ‘claims made’ basis.
    I want a policy that will cover everything i write is a given year, with that cover remaining in place for the duration of my liability, regardless of any new exclusions introduced by the insurer following the next scare issued by the FCA. Is there any insurer out there prepared to provide such cover?

  8. Providing that the FCA acts as a catalyst or honest broker but doesn’t get involved in the scheme itself, I can see merit.

  9. This, I believe, is great news.

    Sure the cost in the interim will be a bit higher, but then again, forecast is, that cost for the FSCS is going to increase anyway, and the benefit is that the polluters will pay or at least those who have a high complaint ratio coupled with those who dabble in very high risk products will have their premiums set accordingly.

    We all fill in out RMAR reports twice a year so all the information is there to set premiums inline with turnover, justified, complaints, products, risk and size. One hope is the correlation across the FCA, FOS and the FSCS is better than we have seen over recent years.

    I have been a firm advocate of the type of equitable funding for the FSCS, IMHO it is the only way the good among us benefit while the bad will have to pay for their mistakes.

    Also the consumer is protected by a cast iron guarantee, and lets be honest here, from the conversations I have had from PI brokers and insurers their hearts are not really in it, high risk, high claims, low premiums and creative underwriting is need to keep the balance, who among us has had a PI policy over the past number of years that hasn’t had some kind of exclusion of some form or another either emboldened or hidden in the terms ?

  10. In respect of a continued FCSCS levy in some shape or form, then it strikes me that will merely be a continuation of the old blank cheque with perhaps a discounted starting point.

    As far as any PI contribution may be concerned then if the PI insurers see that they are going to bear a proportion of existing FSCS costs then I have no doubt that they will increase PI premiums to cover that, and probably do so by more than those costs to include their profit into the calculations. In addition even if there is some way of PI paying towards the costs of the sins of a failed firm, which by definition may well be after that firms premiums have lapsed or renewal has not been done, I cannot see where the money represented by policy excesses is going to come from, other than to fall back onto the FSCS and thus the levy. So whether by policy excesses or the whole claims from lapsed policies landing back on the FSCS, or increased PI premiums the good firms continue to pay.

    So smoke and mirrors all round but the good firms continue to pay for the bad ones.

    I continue to believe that the only equitable solution is a product levy and that we need to direct our attention to parliament to sort this out

  11. Great idea. PI insurers combined make many £millions of profit dodging claims with high excesses and exclusions. Having a combined funding system would plough that back in, effectively, making PII a lot less expensive. Please make it happen but don;t ignore the product levy too.

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