Brokers are set to pay even more money in FSCS fees next month, it is believed, after it was reported that a previously mooted £16 million interim levy has become almost certain.
According to the Insurance Times, firms will have just one month in which to generate the cash for the extra bill. This extra funding is set to pay for an increase in payment protection insurance (PPI) mis-selling claims handled by the FSCS.
It is believed the new levy is to be set at around 55 per cent of the FSCS element of brokers 2012/13 regulatory bill. It means the total FSCS cost to insurance intermediaries this year has rocketed to £57 million.
BIBA head of compliance and training Steve White commented: “Following discussions we have had with the FSCS, we understand that there is a 99% certainty that this interim levy is coming.
“This will once again focus peoples’ minds on just how unfair the funding model is of the compensation scheme, and adds weight to our demand for change.”
While the new levy was hinted at last year, it has been mooted in the past, making this move something of an unpleasant surprise for those in the industry.
The FSCS’s newly-published plan and budget for 2013/14 revealed the home finance intermediation class saw an annual levy of £4.5 million for the year 2012/13. According to the organisation, the predicted increase in claims volumes for mortgage brokers was never realised in 2012/13, which is why it has reduced its claims assumptions for next year. Mortgage brokers will not have to pay a FSCS annual levy for 2013/14 or an interim levy for 2012/13.
However, the rise in PPI claims will see general insurers strained as they cope with the £58 million cost. Indeed, firms within the general insurance intermediation class will see a 61 per cent increase in their levy due to these PPI claims, which do not appear to be coming to an end.
However, the FSCS’s claims estimates for PPI in the year 2012/13 have dropped slightly, going from 19,782 in February to 19,046. The FSA last September predicted that PPI claims would drop by 29 per cent to 13,575 for 2013/14, however this estimation has dropped and it now believed the number of PPI claims will drop by just 16 per cent to around 16,000.
The new levy will come as a shock to many in the industry after the interim measure was scrapped in 2010. During the 2010/11, the general levy was set at £148 million, of which £61 million went into firms in the General Insurance Intermediation sub-class in order to cover the costs of payment protection insurance claims. However, a further interim measure of £20 million was scrapped.
At the time, Eric Galbraith, chief executive of the British Insurance Brokers’ Association, commented: “Whilst we welcome the fact that brokers will no longer be called upon to pay an interim levy this spring, the increased burden of £61.4m on brokers for 2010/11, once again highlights the urgent need for the compensation funding model to be addressed.”
The big banks have been incredibly hard hit by PPI claims, with new figures revealing how much each financial institution has set aside to deal with the crisis so far.
Lloyds Group has made the biggest provision so far, putting aside £6.7 billion in order to compensate its consumers. By the end of 2012, it had spent some £4.3 billion on settling claims, with around £700 million of this sum going on admin. Furthermore, in the last quarter of 2012 it spent £200 million a month on settling complaints.
Meanwhile, HSBC has recently added £199 million to its provision, which increases the total to £1.5 billion. So far, £757 million of this money has been claimed, and it employs 700 staff in the UK to deal with the issue.
Santander has put aside £173 million to date, and £42 million of this has been paid out. This accounted for just 1.6 per cent of the total industry providing on September 30th. It was also found that of the claims the society receives, 42 per cent have never been sold a PPI policy, and 72 per cent of these claims are generated through claims management companies.
This follows news that thousands of jobs have been created to deal with the claims over mis-sold PPI.
Research by Manpower found that at least 20,000 new positions have been created to deal with the fallout from the scandal. The jobs taken into account by these figures were those created by big banks – the research did not take into account those created by companies that act as a go-between for claimants.
Manpower’s UK managing director commented: “Within the last month alone, we have seen big names like Barclays and Lloyds massively raise the amount of money set aside to deal with PPI claims.
“A whopping £17bn has already been allocated, and some commentators think that number could rise much further.”