Policyholders are eligible for protection from the FSCS if they are insured by an authorised insurer under a contract of insurance issued in the UK (or in some cases in the EEA, Channel Islands or Isle of Man). Certain policies issued before 1 December 2001 for risks elsewhere in the world may also be protected. Lloyd's policies have been covered since 1 January 2004 and then only in the event that the Central Fund fails.
Policyholder protection is triggered if an authorised firm is unable to meet claims against it, for example if it has been placed in provisional liquidation or administration.
The FSCS does not cover re-insurance or marine, aviation, transport business and credit insurance.
If an insurer fails, the appointed insolvency practitioner or The FSCS will first contact policyholders to explain the position regarding a policy or claim and what to do if they need immediate help.
The FSCS's role will be to maintain the payment of benefits that are due under protected policies and to try and arrange for the continuity of insurance for all eligible policyholders. This may be arranged, for example, by transferring the ongoing policies of the failed insurer to another insurance firm, or by arranging the issue of new policies from another insurer (in substitution for existing policies).
We expect that an insolvency practitioner would appoint a run-off agent to calculate claims and handle any return of premium claims. The FSCS will liaise with the insolvency practitioner (and run-off agent) to ensure that outstanding claims are processed as quickly as possible. The FSCS carries out regular audits on the larger insolvent insurance firms to ensure that claims are being handled effectively and economically.
When a claim or return premium is agreed it is submitted to The FSCS by the appointed run-off agent to confirm its eligibility under the Scheme's rules, and for payment. For larger insurance firm failures ('estates') the eligibility check will be carried out by the run-off agent and the FSCS will confirm eligibility at the time of payment.
Payments are made either by cheque or electronic transfer depending on the urgency of the case, usually within five days of receipt of the payment request.
90% of the claim is covered, with no upper limit. Compulsory insurance is protected in full.
The Financial Conduct Authority website includes a searchable database of all firms authorised and regulated by the FCA and the Prudential Regulation Authority (PRA).