Insurance brokers should not have to pay for the mistakes of insolvent credit brokers, the British Insurance Brokers’ Association (BIBA) says.

BIBA has proposed a change to the UK Financial Services Compensation Scheme (FSCS) funding model, saying it should include a separate sub-class for “pure” insurance brokers.

The FSCS is a last resort service for customers with valid compensation claims that a company cannot meet, usually because of insolvency.

The industry-funded scheme sees levies collected annually from UK financial services companies, which are split into five broad classes and nine sub-classes.

In the case of a default, the sub-class in which it occurs is the first to bear the cost. If claims exceed a certain level, other classes contribute.

The general insurance intermediation class includes insurance brokers, credit brokers and other firms.

Creating a sub-class for “pure” insurance brokers would mean they are separated from credit brokers, whose payment protection insurance (PPI) failures have led to increased fees for brokers in recent years, BIBA says.

PPI is sold as a secondary product alongside credit and has been linked to mis-selling.

BIBA says insurance brokers are structurally different to credit brokers and other companies, and separating levies accordingly should discourage mis-selling.