The Financial Services Compensation Scheme is the UK’s statutory fund of last resort for customers of authorised financial services firms. For PI insurance it operates in two directions: it protects policyholders if the PI insurer becomes insolvent, and it protects clients of a failed FCA-regulated firm where the firm’s PI cover does not pay out for any reason. The headline figure for compulsory insurance, including PI, is up to 100% of a valid claim with no upper cash limit.
What FSCS PI cover means in PI insurance
FSCS is established under the Financial Services and Markets Act 2000 and funded by levies on authorised firms. Its remit covers deposits, insurance, investments, mortgages, pensions and consumer credit. The scheme steps in only where a firm has “failed” — defined in FSCS rules and usually meaning the firm cannot meet its liabilities or has gone into formal insolvency.
For PI insurance, there are two distinct FSCS protections.
Insurer-side protection. If the PI insurer fails, FSCS protects the policyholder. For compulsory insurance — which includes PI insurance required by a regulator (solicitors, financial advisers, mortgage brokers and so on) and PI required by professional bodies as a condition of practice — FSCS protection is 100% of the valid claim with no upper cash limit. For non-compulsory PI cover the protection is 90% of the valid claim with no upper limit, on long-term insurance contracts and certain general insurance categories. The compulsory / non-compulsory distinction matters.
Firm-side protection. If an FCA-regulated firm fails owing money on a claim or FOS award, and its PI insurance does not respond (because cover has lapsed, been avoided or has policy limits exhausted), FSCS may compensate the firm’s eligible customers within the relevant FSCS protection limits for that activity. The firm-side limits depend on the regulated activity — investment business is currently protected up to £85,000 per claim per eligible customer, for example.
The two protections are distinct and a single situation can engage either or both. They sit on top of, not instead of, the PI policy.
How FSCS PI cover works in practice
Insurer failure. A handful of PI insurers operating in the UK market have failed historically. Where this happens, FSCS takes over the insurer’s policyholder obligations within scheme rules. Live claims are taken on by FSCS or by an appointed claims handler. The firm whose PI policy is in run-off through FSCS is treated for regulatory and contractual purposes as remaining insured, because FSCS stands in the insurer’s shoes for the relevant compensation.
Firm failure. Where an FCA-regulated firm has failed, the firm’s PI policy is still in place until policy expiry; FSCS does not replace the policy, but where the policy does not pay out for one reason or another, FSCS picks up the unpaid liability to the firm’s eligible customers within the firm-side compensation limits for the relevant activity.
Eligibility. Eligibility for FSCS is set out in COMP — the FCA’s Compensation sourcebook. For insurance claims, most consumers, small businesses and charities are eligible. Larger commercial policyholders may not be. For firm-side claims (advice or other regulated activity), eligibility broadly tracks the FOS eligible-complainant tests — see our FOS jurisdiction definition — though FSCS’s eligibility rules have their own nuances.
Claim process. Claims are submitted to FSCS online or by post. FSCS assesses the claim against the failed firm’s records or the failed insurer’s policy terms. Decisions can be reviewed and ultimately appealed to FOS in some cases. The process can take several months.
Funding. FSCS is funded by industry levies on authorised firms. Levies are allocated by class so that, broadly, insurance levies fund insurance compensation. The funding mechanism does not affect a claimant’s entitlement.
Worked example with realistic numbers
A surveying practice carries PI cover at £2m each and every claim with a £5,000 excess. Mid-year, the PI insurer is placed into administration. The practice has a circumstance notified two months earlier — a defective-survey allegation by a buyer for around £140,000 of remediation costs.
FSCS confirms the insurer’s failure triggers protection for the practice as policyholder. Because RICS makes PI insurance a condition of practice, the cover is treated as compulsory insurance for FSCS purposes and protection is 100% of valid claims with no upper cash limit. The notified circumstance and any subsequent claim arising are handled by FSCS or its appointed run-off agent on the original policy terms. The practice’s £5,000 excess remains payable on each claim. The £2m limit remains intact for the policy year.
In a separate scenario, a small IFA firm fails owing a £130,000 FOS award to a former client and a £40,000 contribution to defence costs of a related claim. The firm’s PI insurer avoids the policy for material non-disclosure at proposal. The client applies to FSCS. The firm-side FSCS limit for investment business is £85,000 per claim per eligible customer. FSCS pays £85,000 of the £130,000 award; the client is out of pocket for the £45,000 shortfall and the £40,000 cost contribution that is not within FSCS’s remit.
These two examples show why insurer financial strength rating and firm proposal accuracy both matter: FSCS protection is robust for insurer failure but more limited where the firm has failed and the policy has not paid out.
When this matters most
FSCS PI cover matters most at three moments.
Insurer selection at placement. A broker placing PI cover should consider the financial strength of the insurer alongside premium and wording. Insurers with weaker ratings may be cheaper but carry a higher probability of failure. FSCS is a backstop, not a substitute for placing with a financially sound insurer. The compulsory-PI 100% protection is reassuring but the process of running off through FSCS is not friction-free.
Run-off cover when a firm closes. A closed firm’s run-off cover is the policyholder’s only ongoing PI protection. If the run-off insurer fails, FSCS steps in. Firms in run-off cannot easily move to a new insurer because they are no longer trading, so insurer choice at the start of run-off is consequential.
Following a FOS or court decision. A complainant or claimant relying on a successful FOS or court outcome against a firm needs to know whether the firm will actually pay. If the firm fails and the PI policy does not pay out, FSCS is the route to compensation, subject to eligibility and the firm-side limit for the activity. The PI policy’s first job is to pay the claim; FSCS is the safety net only when that breaks down.
Common variations and market wording
PI policy wordings do not usually reference FSCS directly because FSCS protection is a matter of statute and FCA rules, not the policy itself. However, certain wordings and certain regulated frameworks interact with FSCS in specific ways.
Solicitors’ MTC PI. Under the SRA Minimum Terms and Conditions, the insurer cannot avoid the policy as against an innocent claimant. So in solicitors’ PI the FSCS firm-side route is rarely needed because the policy must respond. See SRA MTC.
IFA PI. Personal investment firms’ PI policies typically permit avoidance for material non-disclosure and warranty breach. Where this happens, the FSCS firm-side route at £85,000 per claim is the client’s main protection. The mismatch between FOS award limits (currently around £415,000 for newer vintages — see FOS jurisdiction) and the FSCS investment limit of £85,000 leaves a coverage gap.
Run-off cover. Some PI policies cover the firm only while it is trading. Others extend automatically into run-off for a defined period. If neither covers a particular post-closure claim, FSCS may be the only route — and only if the firm has failed and the eligibility tests are met.
Layered programmes. A firm with a primary PI policy and an excess layer with a different insurer needs to consider the financial strength of each insurer. FSCS treats each policy on its own merits.
Related concepts
FSCS sits alongside FOS as the UK’s customer-protection infrastructure, with FOS as the binding dispute-resolution body and FSCS as the fund of last resort. For solicitors specifically, the SRA Minimum Terms and Conditions and the qualifying insurer regime reduce reliance on FSCS by requiring the policy to respond in most circumstances even where the firm has misbehaved at proposal.
Frequently asked questions
Does FSCS cover PI insurance?
Yes. FSCS protects policyholders if a PI insurer becomes insolvent. For compulsory insurance — including PI required by a regulator or professional body as a condition of practice — protection is up to 100% of valid claims with no upper cash limit. For non-compulsory PI, protection is typically 90% of valid claims with no upper limit. FSCS can also protect customers of a failed FCA-regulated firm where the firm’s PI does not pay out, subject to activity-based limits.
What happens if my PI insurer goes bust?
FSCS steps in. For PI cover treated as compulsory insurance (most regulated profession PI), FSCS protection is 100% of valid claims with no cash cap. FSCS or an appointed run-off agent assumes the insurer’s obligations to policyholders on the original policy terms. Notified circumstances are handled, the firm’s policy excess remains payable, and the firm’s regulatory cover position is normally preserved. The process is slower than an insurer-led claim but the cover holds.
Is FSCS the same as FOS?
No. FOS is a binding dispute-resolution service for complaints against authorised firms. FSCS is a compensation scheme of last resort that pays when an authorised firm or insurer fails. A complainant’s first port of call is the firm (and if unresolved, FOS). FSCS becomes relevant only where the firm or its insurer has failed and the policy is not paying out. See our FOS jurisdiction definition for the FOS process.
What is the FSCS limit for PI insurance?
For insurer failure, the protection is 100% of valid claims with no upper cash limit on compulsory insurance, and 90% with no upper limit on most non-compulsory insurance. For firm failure where the firm’s PI has not paid out, the limit depends on the regulated activity — currently £85,000 per claim per eligible customer for investment business, for example. Always check current FSCS limits because they are reviewed periodically.
Is solicitors’ PI compulsory for FSCS purposes?
Yes. SRA-regulated solicitors’ PI is required as a condition of practice and is therefore compulsory insurance for FSCS purposes. If the insurer fails, FSCS protection is 100% of valid claims with no upper cash limit. The SRA’s Minimum Terms and Conditions also restrict the insurer’s ability to avoid the policy, so reliance on FSCS firm-side cover is less common in solicitors’ PI than in some other regulated sectors.
Do FSCS rules apply to overseas insurers?
FSCS protection applies to insurance written by FCA-authorised insurers, including UK branches of overseas insurers authorised under the FCA’s permissions regime. Pure overseas insurers not authorised in the UK are outside FSCS. Brokers placing PI should confirm the regulatory status of the insurer at point of placement — a non-UK-authorised insurer leaves the firm without FSCS protection even where the cover is compulsory under the firm’s regulator.
Can my firm claim against FSCS?
A firm is generally an eligible claimant under FSCS for insurance protection if it falls within the FCA’s eligibility tests (broadly small businesses and charities meeting size thresholds). Larger commercial firms may not be eligible for FSCS on insurer failure, leaving them exposed if the insurer goes under. This is one of the reasons financial strength of the insurer matters at placement for larger firms.
How long does an FSCS claim take?
Several months in most cases, sometimes longer for complex claims or large failures. FSCS assesses the claim against the failed firm or insurer’s records, may seek further evidence, and issues a decision. Decisions can be reviewed internally. FSCS publishes service levels but specific claim timelines vary by case complexity, claim volume in a particular failure, and the quality of the evidence on file.
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About Apex Insurance Brokers Ltd
Apex Insurance Brokers Ltd is a Bristol-based specialist insurance broker authorised and regulated by the Financial Conduct Authority under firm reference number 724952, and registered at Companies House under number 07014570. The firm advises professional services practices across England and Wales on Professional Indemnity, Cyber and related covers. Contact us at info@apexinsurancebrokers.co.uk or on 0117 325 0027.
Last reviewed: May 2026 by Apex Insurance Brokers Ltd.
Important: this article is general information, not advice on your specific circumstances. For advice on PI insurance for your firm, contact us on 0117 325 0027 or info@apexinsurancebrokers.co.uk.