Insurance brokers in the UK are again facing a massive cost hike in regulatory costs, with the Financial Services Compensation Scheme (FSCS) levy expected to increase by around 50% this June.

The increase, published in the scheme’s interim budget, comes on the back of nine-fold increases last year.

The British Insurance Brokers’ Association (BIBA) has warned that brokers may have to pass the cost of the levy increase on to customers to avoid going out of business. It is urging brokers to adjust their budgets in anticipation of the rise.

BIBA CEO Eric Galbraith says the increasing levy is one of the biggest issues facing UK brokers.

“Claims on the scheme have continued to increase because of the failure of credit brokers and their mis-selling of payment protection insurance (PPI),” he said.

Increases in the 2010/11 levy were also driven by increasing numbers of PPI claims, and they are expected to increase from about 8000 last year to 20,000 this year.

Institute of Insurance Brokers CEO Barbara Bradshaw told insuranceNEWS.com.au brokers “feel increasingly bitter, as very few transact this category of insurance”.

“This amount of increase could easily be the straw that broke the camel’s back and could see small brokers exit the market.”

Of the compensation scheme’s estimated £240 million ($382 million) funding requirement for 2011/12, general insurance provisions account for about £147.5 million ($234.7 million).

General insurance intermediaries had £93.5 million ($148.8 million) attributed to them – up from £61 million ($97 million) in 2010/11.

BIBA wants brokers separated into sub-classes, which will allow general insurance brokers to avoid paying for the failings of credit brokers. However, a consultation paper to review funding options has been delayed.

Meanwhile, the Financial Services Authority (FSA) has appointed Martin Wheatley as CEO-designate of its Consumer Protection and Markets Authority, one of the two regulatory bodies that will be formed when the FSA is divided late next year.