Britain’s feisty Institute of Insurance Brokers (IIB) is fighting a new regulatory push to directly levy brokers and mortgage insurers to pay for the country’s ombudsman and policyholder compensation schemes.

IIB Director-General Andrew Paddick says the plan – part of the UK’s impending financial services reforms – is unfair to brokers because unlike insurers they can’t pass on the costs.

“When an authorised insurer fails, other insurers are able to pass compensation scheme levies to policyholders as part of premium pricing,” he said. “The Financial Services Authority’s proposals for brokers to be subjected to similar levies would in effect result in them acting as excess of loss reinsurers, for which they will receive no premium or means of financial recovery.”

Describing the move as unrealistic and unreasonable, he says brokers who do not have sufficient professional indemnity (PI) cover would be “exposed”.

“An estimated annual levy of 1.5% on a general insurance broker’s gross income would equal roughly double his own PI premium and, for many, wipe out their net profit.  In some cases, such a levy call could force honest, diligent and otherwise compliant firms out of business, due to diminished capital margins.”