There has been much concern in the last few days about the Northern Rock and it's money supply problems, most of us have been startled by the pictures on television of people queuing to remove their deposits from the bank. These scenes have prompted many people to start thinking, how safe are my investments and how safe is any money I pay to any financial institution be it a bank, building society, investment house, insurer, insurance broker or IFA. Insurance brokers are regulated by the financial services authority, which lay down strict guidelines of how we can deal with customers needs and importantly how we can handle their money. Customers money is segregated in to a separate bank account which can either be a statutory or non statutory trust. and whilst in may be commingled with insurers money, the broker has to keep it separate from his own earning or draw downs which are kept in a separate office bank account.
However more people are worried about there actual insurer or investment company going bust than the broker running off with the money, probably because brokers have in a place a system called risk transfer, this means that as soon as you pay your insurance premium to your broker, the insurer they have placed your business with, will have deemed that the money is already paid to them, even if it is not immediately paid in to their bank accounts. Brokers invariably take about 30 days to hand money over to the insurer.
As well as the above mechanisms, FSA regulated insurance brokers (you have to be regulated by the FSA to trade in insurance in the United Kingdom, as obliged to become members of the Financial Services Compensation Scheme. The Financial Services Compensation Scheme or (FSCS) to give it is shortened title is the UK's statutory fund of last resort for customers of authorized financial services firms that are unable to meet their liabilities. The FSCS pays compensation if a firm is unable, or likely to be unable, to pay claims against it. Usually this is as a result of a firm ceasing to trade, and having insufficient assets to meet claims, or they may be insolvent. This service is provided free to consumers. When you accept an insurance policy such as a building insurance UK or a listed building insurance, the provider will be obliged to hand to you a terms of business agreement, this agreement amongst other things will state that the provide is a member of the compensation scheme.
FSCS covers business of varying descriptions conducted by firms authorized by the Financial Services Authority (FSA), who are the independent watchdog set up by the government to regulate financial services in the UK and of paramount importance to protect the rights and interests of consumers. European firms (authorised by their home country regulator) that operate in the UK may also be covered under their scheme
FSCS scheme protects the following:-
- insurance policies
- insurance broking (for business on or after 14 January 2005)
- investment business, and
- Mortgage advice and arranging (for business on or after 31 October 2004).
Compensation - Of course there are limits to the compensation provided, you mat not get all your money back but for simple insurance contracts such as a listed building insurance policy, the levels of compensation are very good.
- Investments 100% of first £30,000. 90% of the next £20,000 Maximum amount in total £48000
- Deposits 100% of the first £2000, 90% of the next £33,000 Maximum £48,000
- Insurance ( Compulsory) and advising & arranging general insurance Unlimited 100% of claim
- Insurance ( non compulsory) and advising & arranging general insurance Unlimited 100% of first £2000 90% of remainder
- Mortgage Advise & arranging 100% of first £30,000 90% of next £20,000 Maximum £48,000
Important dates - There are some important dates to take in to consideration if you are enquiring about compensation. IF in any doubt, you can contact your broker or insurer.
- For investment claims, if a claim relates to business conducted before 28 August 1988 the FSCS are unlikely to be able to help. This is the date when these activities were first protected by an investor compensation scheme in the UK.
- For mortgage advice and arranging, The FSCS will only be able to help if a claim relates to business conducted on or after 31 October 2004. These activities were not protected by FSCS before this date.
- For claims relating to insurance intermediaries, The FSCS will only be able to help if a claim relates to business conducted on or after 14 January 2005. These activities were not protected by FSCS before this date.
It should also be remembered that the FSCS can only consider claims against firms that were authorised by a UK regulator at the time the advice was given.