PRA discussion paper DP2/23 "FSCS General Insurance Limit"

November 7, 2023

The Prudential Regulation Authority (PRA) has published a Discussion paper DP2/23 about the FSCS general insurance limit. This DP seeks feedback on whether it would be appropriate to increase FSCS limits for some or all of the General Insurance areas currently protected at 90%.

This DP is relevant to the FSCS as the scheme administrator of the PRA’s Policyholder Protection Rules, to Insurers authorised by the PRA (including EEA insurers that establish a UK branch which has received PRA authorisation), to EEA insurers in the Supervised Run-off or Contractual Run-off regimes, to firms that have assumed responsibility for liabilities from PRA-authorised insurers (successors), and to policyholders.

When an insurer fails, the FSCS will pay eligible policyholders, with a valid claim under an insurance policy, 90% or 100% of the claim value under that contract of insurance. Whether an eligible policy receives 90% or 100% protection depends on the type of insurance. Over the past 10 years an increasing variety of insurance areas have been moved to 100% coverage.

Following the publication of PRA’s Policy Statement (PS) 21/20 – Extending policyholder protection for building guarantee policies in October 2020, which set out the PRA’s emergency rule change to increase the protection provided by the FSCS for eligible policyholders of buildings guarantee insurance from 90% to 100% of their claim, the PRA committed to review whether there are any other types of GI policy for which increasing FSCS protection from 90% to 100% could be warranted on policyholder protection grounds.

This DP sets out the PRA’s analysis of those areas of GI where the PRA has identified additional FSCS coverage could be warranted to secure an appropriate degree of policyholder protection and possible options to remedy this.  A number of scenarios, insurance products and potential options are discussed.

In carrying out its analysis, the PRA identified that the current definition of ‘small business’ set out in the Policyholder Protection Part of the PRA Rulebook may no longer be appropriate. This DP outlines the issue with the current definition and a possible approach to changing that definition.  The DP also explains the types of insurance policy that were considered as a ‘test’, and provides a number of possible options for consideration.

The PRA requests feedback on this DP by 24th January 2024 from industry, the public and other stakeholders to help develop any potential policy proposals in a future consultation paper (CP).

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