The FSA has published Policy Statement 09/7 (the PS) in connection with its review of the limits under the Financial Services Compensation Scheme (FSCS). The PS addresses changes to FSCS limits in connection with insurance, insurance mediation, investments and home finance mediation and home finance lending and administration which will come into effect on 1 January 2010.

As far as insurance is concerned, the existing cover for 100% of any claim with no upper limit in respect of compulsory insurance business is retained. Non-compulsory lines (both general and life) will no longer be covered for 100% of the first £2,000 and 90% of the remainder - instead a ground up cover of 90% of any claim with no upper limit will apply.

Insurance mediation claims will also be protected for 90% of the claim from the ground up, with no upper limit.

The FSA is of the view that the benefits of these changes - which it considers to be a simpler, more understandable limit; streamlined processing by the FSCS; and removal of any incentive for policyholders with small life insurance claims to oppose transfer of their policies to another provider - outweigh the disadvantage to consumers of a possible loss of up to £200 of their claim.

As noted, the changes come into effect on 1 January 2010, giving firms 8 months to change any relevant disclosures to customers in their documentation.

You can see a copy of the PS by clicking here.