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FSCS stress tests how it would cope with insurer failure

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The Financial Services Compensation Scheme has carried out a stress test exercise to see how it would cope with the collapse of a life office.

In its annual report for 2012/13, published last week, the FSCS said it carried out a simulation exercise in September to test how the organisation would react in the event of the failure of a fictitious life insurer.

The FSCS says while it does not expect such a failure, if this were to happen it would seek to ensure cover and benefits would remain in place, and pay compensation if policyholders were relying on the failed firm for income.

The exercise was carried out over two days. On the first day, the FSCS board was asked to assume the failure was not in the public domain and to play the role of executive advisers.

They were asked to prepare a suitable briefing note for the Government and regulators, then review their communications strategy after they were told the BBC’s business editor was reporting the story.

On the second day, the board reverted to their usual roles and considered what policy decisions they would take.

The FSCS says it will carry out similar exercises in other areas over the next year.

London & Country sales director Mike Aldridge says: “You only have to look at Northern Rock to see what can happen when there is no contingency plan in place. It is good to see the FSCS being proactive on this.”

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