Category: Compliance & AML · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed June 2026
The compensation scheme of last resort for customers of UK-authorised financial services firms — providing protection where an authorised firm is unable to meet its liabilities, with specific cover rules for general insurance and pure protection products.
The Financial Services Compensation Scheme (FSCS) is the UK statutory compensation scheme of last resort. It pays compensation to eligible claimants where an authorised firm has failed and is unable to meet claims against it. For insurance customers, the FSCS operates two principal protection layers: (a) protection if an insurer fails; (b) protection if an insurance intermediary fails and the customer has lost money as a result.
FSMA Part XV (sections 213–224) establishes the FSCS. The FCA Handbook, COMP (Compensation sourcebook), sets the operational rules — eligibility, claims process, levy framework, compensation limits.
For non-investment insurance, the FSCS provides protection at 90% of the value of a valid claim, with no upper limit, where the insurer fails. For compulsory insurance (e.g. employers’ liability, motor third party) the cover is 100%. Where an intermediary fails and the customer has, for example, paid a premium not yet passed to an insurer that is not covered by risk-transfer arrangements, the customer may have an FSCS claim against the intermediary’s failure rather than against the insurer. Customers must be told about FSCS protection in ICOBS 4 disclosure where relevant.
Pure protection (life, critical illness, income protection) has FSCS protection at 100% of the value of a valid claim, with no upper limit. Investment-based insurance (IBIPs and pension-related products) has separate FSCS limits. The “eligible claimant” test broadly tracks the DISP eligible complainant test but with some variations.
A policyholder whose UK-authorised motor insurer fails would have a valid claim paid by FSCS at 100% (because motor third-party liability is compulsory insurance). A policyholder whose insurance broker failed before passing premium to the insurer might, depending on risk-transfer arrangements, claim against the broker’s FSCS protection rather than against the insurer.
Financial Services and Markets Act 2000, Part XV (sections 213–224). FCA Handbook, Compensation sourcebook (COMP). FSCS scheme rules and published limits.
By Matt Bartlett, Director, on 2026-06-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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