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
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.