Chief Executive's statement
This latest edition of Outlook follows our strategy for the 2020s, which we published a fortnight ago.
At first sight, there is little overlap. Our strategy looks forward to the challenges of the next decade and describes FSCS’s priorities in meeting those challenges.
Outlook has a much shorter timeframe: it updates on FSCS’s experience so far this year and the prospects for what remains of 2018/19.
In reality, though, what FSCS is seeing and doing now underlines some of the key themes of the strategy. This will be seen when we publish our Plan and Budget for 2019/20 in January.
The foreground is dominated by the continuing growth in pensions claims. Despite raising a levy on life and pensions advisers in April of £75m – the maximum allowable for nine months from June 2018 to March 2019 – we expect a deficit by year end of just under £70m. This will, I am afraid, necessitate a supplementary
levy falling on the retail pool. We shall announce the size of that supplementary levy in January.
These short-term financial implications should not, however, obscure the longer-term challenge of tackling the causes of rising pension claims and so stemming future compensation costs.
We see some common factors underlying these claims. We see consumer vulnerability as people seek to maximise their income in retirement and are persuaded to make unwise investments, usually held within a Self-Invested Personal Pension (SIPP), or to trade in valuable rights in defined benefit schemes. We see many examples of mis-selling as both regulated, but also increasingly unregulated advisers, promote risky, illiquid investments. We see providers who fail to perform rudimentary due diligence on these investments. We see advisory businesses which are under-capitalised or underinsured for the risks they run. And we see directors and advisers involved in failure who re-invent themselves and come back for more.
We believe that there are steps that we can take, in partnership with the regulators and the industry, to mitigate these risks.
Those steps focus partly on educating consumers better about the risks they face and the scope of FSCS protection. We know from our research that consumers who understand FSCS protection make different choices about the scale of their retirement saving and the products they buy. We, therefore, designate one pillar of FSCS’s strategy for the 2020s as promote – raising awareness of FSCS protection.
We designate another pillar of FSCS’s strategy as prevent to describe the actions we can take in support of the
regulators to improve foresight and intelligence sharing in order to identify risks early and to act promptly to pre-empt them.
We know from our research that consumers who understand FSCS
protection make different choices about the scale of their retirement saving and the products they buy.
We have also made significant strides this year in taking forward two other pillars of our strategy: improving our service to customers – protect – and enhancing our resilience – prepare.
Our partnership with Capita, which launched in July, is key to both.
In these early days of the partnership, we and our partners have prioritised maintaining the quality and accuracy of claims handling. To this end, FSCS has helped Capita to induct over 100 additional new staff, including new staff specifically charged with reviewing the accuracy of decisions. The new partnership operates a new accreditation programme to encompass both FSCS’s and our partner’s claims handlers. This has helped in reducing the overall percentage of both complaints and appeals received after a decision being communicated. The Complaints Team in turn have reduced the complaint resolution time by 22 per cent since April 2018.
Despite this backdrop of higher-than-forecast volumes and an increase in the complexity, FSCS continues to reduce the time taken to process customers’ claims.
Our preparedness this year has been tested by nine credit union failures, by a further significant insurance failure and by the failure of Beaufort Securities.
In all standard cases, we have compensated depositors in the failed credit unions within seven days. We are
confident that this capacity could be scaled to deal with the failure of any bank, building society or credit union for which insolvency and FSCS pay-out is the preferred resolution approach.
In May, the Danish insurer Alpha Insurance failed. We have been working in collaboration with the liquidator and Danish Insurance Guarantee Fund to compensate policyholders and return premium. With the assistance of brokers, we have facilitated the replacement of 177,000 Guaranteed Asset Protection (GAP) policies and 10,000 Motor policies. We are currently working on Return of Premium payments for other products and policyholders but, as with other recent failures such as Enterprise, we have found that some of the data held by the insurer is of a low quality. This raises complexity and causes delays as the liquidator identifies which policyholders are entitled to compensation.
We continue to compensate claims from the recent failures of Enterprise and Gable and significant continuing costs are expected in respect of the motor claims from these insurers over the next two years.
As a result of these insurance failures, we are expecting a deficit for general insurance of over £10m. This is below the threshold which would automatically trigger a supplementary levy, but we expect to levy in the light of updated forecasts in January.
And, as always, there may be new failures or claims against firms that have failed for which we have no allowance today – but will need to keep under review ahead of the new year.
Finally, I should note the substantial work undertaken by FSCS to protect clients of Beaufort Securities, which failed early this year. Not only has FSCS compensated the great majority of those investors for their losses arising from the costs of returning their cash and assets, but we have, in partnership with the special
administrators of the Beaufort estate, also been able to arrange for the cash and assets to be transferred to a new provider of brokerage services.
In short, FSCS’s experience in the first months of 2018/19 foreshadows in important ways the strategy for the 2020s that we published earlier this month.