Joint Committee on Statutory Instruments Fifteenth Report


Memorandum by HM Treasury

Insurance (Fees) Regulations 2000 (S.I. 2001/812)

1. The Committee has asked Her Majesty's Treasury to submit a memorandum on the following point:-

    The fee payable under regulation 4 by a company whose gross premiums receivable exceed £150 million, the limit on total fees set out in regulation 6(1) and the fee payable under regulation 9 are all increased by 12.5%. Explain the reason for the size of these increases.

2. Section 94A of the Insurance Companies Act 1982, inserted by section 1 of the Insurance Fees Act 1985, provides in subsections (4) and (5) that in making Regulations under this section the Treasury must have regard to the object of securing, as far as practicable, that the amount of fees payable by insurance companies and Lloyd's is equal to the costs incurred or likely to be incurred in carrying out the supervisory functions prescribed under subsection (6).

3. These costs comprise the Financial Services Authority's (FSA) charge for carrying out certain of the prescribed functions under delegated authority in an Order under the Deregulation and Contracting-out Act 1994, and the cost of handling proposals for UK and European legislation, including legal and actuarial costs.

4. For this financial year, the overall increase of 8% in the level of fees covers an increase in the FSA's charges due to their decision to shift resources to supervision of insurers in line with their increasingly risk-based approach to supervision, the cost of the additional function prescribed in Regulation 10(d) of these Regulations, and an amount by which charges were under-recovered in 1999/2000.

5. The Treasury recognises the importance both to consumers and to insurance companies of the effective regulation, but must also have regard to the burden to business of the cost of regulation; that it should be kept in proportion to its benefit to ensure that it represents value to both consumers and the insurance industry. The percentage increase in the charge to the larger companies, group insurers and Lloyd's is higher than that for the insurance companies because it is proportional to the increased amount of regulation required to supervise the type of business that they carry on.

6. The Association of British Insurers, the Industry's main trade association, and Lloyd's have been consulted. They are content with the level of increase this year.

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