The FSCS has published its May 2022 Outlook update which confirms the latest compensation and overall levy forecast for 2022/23. The update also outlines FSCS priorities for 2022/23 which include embedding funeral plans into scope, working on customer experience of the future and working on clearly defining the FSCS’s ambition for consumers.
In November 2021 the forecasted levy for the year 2022/23 was £900m, this has decreased to £625m due to a reduction in expected claims.
The majority of this decrease was due to:
- a £54m reduction in compensation paid in the Life Distribution and Investment Intermediation (LDII) class due to fewer complex pension claims being received than previously forecast;
- a £14m reduction in compensation paid in the Investment Provision class due to fewer SIPP operator failures than previously forecast; and
- a £56m reduction in compensation paid in the General Insurance Provision class.
For intermediaries the final levy for the 2022/23 year is £5.3m (originally estimated at £68m).
The main reason for this deduction is that the class will no longer be required to make a £59m retail pool contribution to the LDII class. This is because FSCS no longer expect the LDII class to breach its annual levy limit and require additional funding from other classes.
For insurers the final levy for the 2022/23 year is £211.7m (originally estimated at £264m). The main reasons behind this deduction include:
- the compensation costs for 2021/22 were £55m lower than forecast in November’s Outlook. One of the main reasons for this was that the compensation costs relating to East West Insurance Company Ltd were £34m lower than anticipated. The underspend was for two reasons:
- there was limited claims data available when forecasting for the 2021/22 period;
- the market demand for experts, suppliers, and materials, particularly considering the Government’s support scheme to address the cladding crisis in the UK, has caused delays for this portfolio;
- the lower compensation costs in 2021/22 resulted in a £42m surplus in the opening balance in this class and has been offset against the 2022/23 levy.
- A £19m retail pool contribution will no longer be required by this class.