No penalty for using unrated insurers
In a consultation in December 2016, the FCA proposed to charge brokers an additional risk-based Financial Services Compensation Scheme (FSCS) levy for placing business with unrated insurers. The rules for the FSCS have now been published, and it is clear that this is no longer on the agenda.
There were two high-profile failures of unrated insurers in 2016, Gable and Enterprise. However, the FCA reported that respondents to the consultation had argued that there is insufficient evidence that unrated insurers are more likely to fail than rated ones. This, combined with concerns over the negative impact that such a levy could have on mutual and small insurers, resulted in the proposal being abandoned.
While the abandonment of plans to introduce such a levy is no doubt good news for brokers, the decision is unlikely to have any impact on the broker’s duties towards its policyholder client. It will remain the responsibility of the broker to advise on the difference between rated and unrated insurers, and to ensure that the cover that is obtained is appropriate for the policyholder.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.