global insurance management

Minimising your FSCS levy


Nov 10 2010

Minimising your FSCS levy

Relevance: All Firms with commercial clients


Action required: Consider action needed to minimise FSA associated fees by declaring only your relevant income for the FSCS levy.


You will be aware of the Financial Services Compensation Scheme (FSCS) and its impact on your 2010 fees. We have already covered this issue but feel it only right to remind you of the potential savings available by declaring ‘tailored’ income in your RMAR, particularly bearing in mind a potential increase in the levy for 2011 -12.

For the year 2009/10, the total levy for general insurance intermediation was £8.5m. For 2010/11 this rocketed to £61.4m. The principle reason was the funding of compensation claims involving payment protection insurance (PPI).

Despite the majority of general insurance intermediary firms having no involvement with PPI sales, all general insurance firms have to contribute to the compensation fund. Problems in the PPI area are far from over. The maximum call on general insurance intermediaries is £195m (more than three times the hit for 2010 – 11) which means there is the potential for further increases in your costs in the future.

The FSCS levy is based on your annual eligible income, which is your annual income (commission and fees) from clients that are eligible to claim compensation from the FSCS. You declare this in the RMAR immediately following your financial year end.

If you have not done so before, we would recommend that you review the figures used to determine the size of next year’s FSCS levy. It may benefit you to report ‘tailored’ income if there is a material difference between your total annual income and eligible claimant income.

Eligible claimant income is made up of commissions and fees earned in respect of:

• individuals;
• businesses with a turnover of under £1m; and
• compulsory insurance classes for your clients with a turnover exceeding £1m (third party motor and employers’ liability).

So, if your business only deals with retail customers there is no benefit in going through the exercise. If you deal with businesses that do have a turnover in excess of £1m, there might be some savings to be had!

As a starting point, if you have not done so already, we would suggest that you work out roughly the amount of income derived form commercial clients with a turnover in excess of £1m. If this is a significant percentage of your total income then it is likely to be worthwhile to complete a more detailed calculation (which would require you to add back in income for compulsory insurances for these clients).

Also bear in mind that, even If your financial year end has already passed, it is possible to restate figures declared to the FSA earlier this year (which they will use for the 2011 – 12 calculation).

(P.S. It is also possible to declare tailored income for the Financial Ombudsman levy although eligibility is different from the FSCS - the FOS covers individuals and firms with a turnover up to 2m Euros and fewer than 10 staff, plus small charities and trusts. As the potential savings are not significant, being no more then £120 for the larger firm used as an example above, it is unlikely to be worth spending much time on calculating this figure unless the numbers are easily available)
 

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