Payment protection insurance misselling has caused a 70-fold increase in Financial Services Compensation Scheme levies for the insurance intermediary sub-class, according to the British Insurance Brokers’ Association.
Biba appeared at an FSCS evidence session at the Houses of Parliament last week, held by the All Party Parliamentary Group on insurance and financial services.
Giving evidence, Biba head of compliance and training Steve White said: “The misselling of PPI by credit brokers has caused a 70-fold increase in FSCS levies over the last three years. A firm that paid £3,000 three years ago is now being faced by a levy demand this summer of £210,000.
“History shows there is around a two-year delay in complaint activity and compensation demands, so it is clear that PPI compensation is going to keep rising for the next few years.”
Chairman of the APPG and Conservative MP for Cardiff North Jonathan Evans said: “In due course, the overall liability in relation to PPI is likely not to be in the hundreds of millions but in the billions. Four billion pounds has been mentioned as an end-game figure in relation to PPI, which seems to me a cost that could not be borne by the industry.”
Evans argued that banks, as the institutions that sold PPI most widely, should be shouldering more of the liability.
Biba called for the FSA to begin consulting on a new funding model for the FSCS so that new rules could be in place by April 2012.
The trade body wants the removal of cross-subsidisation and a model that separates the professional insurance broker from other sellers of general insurance.