The British Insurance Brokers' Association(BIBA) has called for insurers to be re-introduced to cross subsidies in more than a token way in the Financial Services Compensation Scheme(FSCS), in its response to the latest Financial Services Authority’s (FSA) consultation on funding.
The consultation follows demands from BIBA that the FSA reconsults on the issue of insurer cross subsidies because of the unfair financial burden on brokers. The original FSA proposal would have seen brokers taking financial responsibility for product failures across the financial services sector with the insurers not taking collective responsibility for the failures of their products.
BIBA said it is pleased that the FSA listened to its concerns and reconsulted on the issue but that the new proposals are a token gesture and should go further.
Steve White, BIBA's head of Compliance and Training, said “We are pleased that the FSA has now accepted that insurers should face financial responsibility for the mis-selling of their products. However, the actual exposure of insurers to Financial Conduct Authority compensation would be so low in practice that it becomes effectively redundant, even in quite extreme scenarios. BIBA therefore calls for the FSA to make their proposed policy of introducing mutual support from providers to intermediaries effective in practice, not just in theory.
We are in the middle of a long-term campaign and are doing all we can to minimise the exposure of brokers to other providers within the FSCS. We have won our battle in respect of the banks but the immediate challenge is to get insurers to take collective responsibility for the potential failure of their products instead of brokers being on the hook.”
Eric Galbraith, BIBA’s chief executive, added "The longer-term challenge is to achieve a pure insurance broker subclass, but the FSA has said it’s not prepared to do this primarily on the basis of practicality. We believe their concerns about the practicality of defining pure insurance brokers are misplaced, as our suggested solution is relatively simple compared to other regulatory systems. Consequently, we continue to believe that there is a robust case for the separation of pure insurance brokers from non-pure brokers in the FSCS funding system.
We will do all we can to take this forward. The scheme is fundamentally unfair and we have pulled out all the stops to represent brokers including appointing lawyers and specialist consultants Oxera to assist with our arguments."
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