What Happens When an Insurance Company Fails?
Set up under the Financial Services and Markets Act (2000), the Financial Services Compensation Scheme (FSCS) is the “compensation fund of last resort” for customers of insurance companies regulated by the Financial Services Authority (FSA). This role was previously undertaken by the Policyholders Protection Board that levied monies from insurance companies to provide a fund for use in the event of insurance industry insolvencies. The FSCS is similarly funded by insurance industry levies. The maximum level of compensation payable by the FSCS in general insurance claims against an FSA registered firm declared to be “in default” by the FSCS, including house insurance claims, is 100% of the first 2,000 plus 90% of the remainder of the claim. Those are the maximum amounts; the actual amount of compensation would be dependent on the basis of the claim and ultimately on the capacity of the FSCS fund itself to pay compensation up to its stated limits.
