From 14 January 2005 the protection of the FSCS was extended to include customers of general insurance intermediaries.
FSCS will safeguard policyholders if an authorised firm is unable, or likely to be unable, to pay claims against it, for example if it has been placed in provisional liquidation or administration. This is described as being in default. For the Scheme to be able to pay compensation to consumers, we are required under our rules to declare a firm in default.
Intermediaries involved in advising on and arranging general insurance contracts could include:
- insurance brokers
- car dealerships
- mobile phone retailers.
FSCS can only consider claims relating to policies sold on or after 14 January 2005 and only against firms that were fully authorised at the date the policy was arranged. You can check whether a firm is authorised by using the FCA's firmcheck service.
Here are some examples of areas of insurance mediation that may give rise to claims in the event that an authorised firm cannot pay claims against it:
If the firm had not yet placed cover with an insurer before its date of default, the customer could be entitled to a return of premium, or payment of a claim if one was outstanding at that date.
If a firm places insufficient cover for its customer, or fails to tell the customer about a relevant exclusion in the contract, which causes the insurer to reject the claim.
In the event of fraud, for example, if premiums are inflated for the intermediary's own gain or even fraudulent selling where the customer is told they have cover but no insurer actually exists.
If the firm uses the services of a secondary intermediary to arrange cover for its customers, and the secondary intermediary becomes insolvent before passing premiums to an insurer. In this situation, all of the firm's customers may suffer if there is any shortfall in client monies. Customers may be able to receive compensation from FSCS for any financial loss incurred as a result of this.
90% of the claim is covered, with no upper limit. Compulsory insurance is protected in full.