What happens if your insurer goes bust: FSCS protection

Insurance is a promise to pay in the future, so the financial strength of the company making that promise matters. If a UK insurer collapses, that promise does not simply vanish: the Financial Services Compensation Scheme (FSCS) steps in. The FSCS covers a range of financial products when a UK-authorised firm fails, including deposits, insurance, investments, pensions and mortgage advice¹. For insurance, it pays valid claims at either 90% or 100% of the claim value, depending on the type of policy².

The FSCS is not a government bailout paid from taxes. It is set up by parliament, funded by a levy on the authorised firms whose customers it protects, and free to use². It is an independent organisation with its own board, although the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) oversee its operation and set the compensation rules². The PRA is responsible for the rules that govern deposits and insurance; the FCA sets the rules for other activities such as pension advice and investments².

There is one condition that matters more than any other: the FSCS can only protect you if the Prudential Regulation Authority has authorised your insurance provider³. A firm is treated as in default when it cannot pay claims made against it, or is likely to be unable to do so, which typically happens when it is placed into an insolvency process such as administration or liquidation⁴.

If your insurer fails, the FSCS steps in

An insurer fails when it can no longer pay the claims made against it. In practice this usually means the firm has entered administration or liquidation, and an insolvency practitioner takes control of its affairs². At that point the FSCS is triggered, and its job is to make sure policyholders are not left with worthless policies and unpaid claims.

The FSCS covers seven different types of business: deposits, insurance policies, insurance broking, investment business, mortgage advice or broking, debt management and funeral plans⁶. Within that, insurance protection works differently from deposit protection. When a bank fails, the FSCS returns money automatically up to a set limit per person; when an insurer fails, the FSCS instead deals with the policy itself and with claims made under it, and the level of protection depends on what kind of insurance it is¹.

The scheme's role is compensation, not rescue. It does not prop up struggling insurers or take them over. It waits until a firm is in default, then steps in to protect the people who relied on it⁴. Because it is funded by a levy on the authorised firms whose customers it protects, the cost of each failure is spread across the industry rather than falling on the policyholders who happened to pick the firm that went under².

If you hold a policy with an insurer that fails, the practical questions are what happens to the cover you have paid for, what happens to a claim already in progress, and how much of any loss is made good. The rest of this page sets out each of those in turn, along with the limits: the types of insurance the FSCS does not protect, the businesses that cannot claim, and the scams that exploit the scheme's name.

What happens to your policy: a new insurer or a premium refund

When an insurance company fails, the FSCS tries first to keep your cover running. Its stated approach is to try to get seamless cover with another insurer, and if that is not possible, to look to arrange the return of the remaining premium⁷. In other words, the best outcome is that your policy carries on as though nothing had happened, simply underwritten by a different company; the fallback is that the policy ends and you get part of your unused premium back.

The refund is not the full amount. For most types of general insurance policy, the FSCS covers 90% of the remaining policy premium⁸. So if a policy is cancelled partway through its term because the insurer failed and no replacement could be found, the FSCS repays 90% of the calculated refund, not all of it³. The FSCS notes plainly that it can only repay 90% of the calculated refund³.

A transfer of cover is the outcome policyholders generally want, particularly for cover that is legally required or hard to replace, such as motor insurance or home insurance in a flood-risk area. But a transfer is not guaranteed, and the FSCS does not promise one: it states only that it will try⁷. If no transfer is arranged, you are left to buy replacement cover elsewhere, with 90% of your remaining premium returned to help pay for it.

If you were paying for your policy in monthly instalments, the position is more complicated, because the failed insurer or a credit provider may be owed money for the rest of the term. The FSCS works with the people involved in the failure, including the failed firm, the FCA and the insolvency practitioner, to sort out who is owed what⁹. If you are in this situation, the FSCS is the place to ask, and its contact details are at the end of this page.

How much the FSCS pays: 90% or 100% depending on the policy

The headline rule is simple: the FSCS protects most types of general insurance at 90%, without an upper limit⁹. There is no cap of the kind that applies to bank deposits, so a large valid claim is paid at the same percentage as a small one. What varies is the percentage itself, which depends on the type of policy the claim relates to².

The FSCS sets out the percentages by type of insurance:

The shortfall on ordinary claims is the trade-off built into the scheme. The FSCS pays either 90% or 100% of the claim value when policyholders have valid claims under a policy with a failed insurer, with the type of policy deciding which applies⁹. It is able to protect most types of general insurance at 90% with no upper limit⁹, so the size of the claim is not the issue; the type of policy is.

Historical failures are treated under the rules that were in force at the time. For insurance claims against firms that failed between 1 December 2001 and 31 December 2009, protection was 100% for the first £2,000 of the claim and then 90% of the remainder³. For claims against an insurer, bank or investment firm that failed before 1 December 2001, the FSCS cannot help: those claims fall under the rules of the separate compensation schemes that existed before that date⁴.

Compulsory cover is paid in full

Insurance the law requires you to have gets the strongest protection. Compulsory general insurance is protected at 100%¹, and the clearest example is third-party motor insurance, which the FSCS pays in full³. The same 100% protection applies to compulsory general insurance bought through a failed broker or financial adviser¹.

The reason for the difference is that compulsory insurance protects other people as much as the policyholder. Third-party motor insurance exists so that anyone you injure or whose property you damage is compensated, and so that a driver who has done everything right is not left uninsured because their insurer collapsed. The government describes third-party insurance as covering you if you have an accident causing damage or injury to any other person, vehicle, animal or property¹⁰. Third party fire and theft adds cover if the vehicle is damaged by fire or stolen, and comprehensive cover adds payment for damage to your own vehicle in an accident¹¹.

For a motor policy, this split matters in a specific way. If a comprehensive motor insurer fails, the compulsory third-party element of a claim is protected at 100%, while the wider elements of the policy fall under the general rules. The FSCS's own breakdown lists third-party motor claims at 100% alongside property, health, travel and warranty claims at 90%³.

Employers' liability insurance, which businesses must hold to cover injuries to their employees, is another form of compulsory cover, and it falls under the same 100% rule for compulsory general insurance¹. If you are tracing an old employer's liability policy from a firm that no longer exists, the employers' liability tracing process is separate from FSCS compensation, but the two can both be relevant.

When a broker goes bust

Most people buy insurance either direct from an insurer, through a broker, or through a comparison site. If the insurer fails, the rules above apply. If instead the broker or adviser that sold you the policy fails, different rules apply, because the FSCS treats insurance broking as a separate type of business⁶.

The FSCS can help in two main situations involving a failed insurance broker or financial adviser. One is where you were mis-sold an insurance policy and lost money, and the firm that sold it has since failed. The other is where you were the victim of fraud, and the broker has gone out of business and cannot return the premiums or money it owes you⁵. In both cases the claim is against the broker, not the insurer, and the insurer's own solvency is not the issue.

Where the insurance itself was compulsory, protection is at 100%¹. For other insurance bought through a failed intermediary, the general rules and eligibility limits apply, including the turnover threshold for small businesses described later on this page.

There is also a date limit. For claims relating to insurance intermediaries, the FSCS can only help if the claim relates to business conducted on or after 14 January 2005⁴. Business done before that date falls outside the scheme for intermediary claims, even if the firm failed much later. If you bought a policy through a broker that has since failed and are unsure which side of that line your purchase falls, the FSCS can check this for you.

Insurance the FSCS does not protect

Not every policy sold in the UK is backed by the scheme. The FSCS lists the insurance claims that are not eligible for protection, and they are mostly commercial and specialist classes: goods in transit, marine, aviation, credit insurance, and contracts of reinsurance for insurance firms or brokers³. The same exclusions appear in the FSCS's own insurance breakdown, which lists credit insurance, marine and aviation as not eligible³.

For a household consumer these exclusions rarely bite, but they are worth knowing if you buy cover for a business or a boat. Marine and aviation insurance are excluded however the policy was bought. Credit insurance, which can appear as add-on cover on loans and finance agreements, is also outside the scheme³.

Two further limits are less obvious. First, the FSCS's online protection checker does not include mutual insurers, because of the way they are structured; the FSCS notes that mutual insurers do not appear in its checker, except for credit unions that can take deposits¹². That does not necessarily mean a mutual insurer's policies are unprotected, but it does mean you cannot confirm protection with the checker and may need to ask the insurer directly.

Second, protection depends on the failed firm being UK-authorised. The FSCS only covers financial services firms authorised by the FCA or the PRA to do business in the UK⁶. Policies written by insurers based abroad, or bought while living abroad, are not covered by the UK scheme, and you would need to look at the compensation arrangements in the country where the insurer is based.

Who can claim: individuals, small businesses and the PRA test

FSCS protection is not universal: it depends on who you are as well as on what you bought. Individuals are eligible in all cases. For companies, the rules differ by type of claim. For general insurance other than the compulsory element, small companies must have an annual turnover of less than £1m to be eligible to claim compensation⁶. Large businesses are usually excluded, although the FSCS notes there are some exceptions for deposits and insurance⁴.

The eligibility rules also spell out the position for other claimants: the FSCS protects deposits, insurance policies, insurance broking, investment business, mortgage advice or broking, debt management and funeral plans, each with its own eligibility conditions⁶. For insurance, the starting point is that the policyholder is an individual or a small business.

The second test is about the failed firm, not the claimant. The company that failed must have been regulated by the Prudential Regulation Authority³, and the FSCS states plainly that it can only protect you if the PRA has authorised your insurance provider³. This is the test that catches out people who bought cover from a firm that was never authorised in the UK, or who bought what looked like insurance but was in fact a product sold outside the regulatory perimeter. If the firm was never authorised, the FSCS has nothing to compensate against.

The scheme rules also make provision for corporate bodies in particular roles, such as trustees of personal pension schemes, reflecting the fact that a claimant can be an organisation acting for individuals rather than the individual themselves¹³. For most readers this will never arise, but it matters for small firms and partnerships holding policies on behalf of others.

How to check your insurer is protected before you buy

The FSCS is blunt about timing: it is really important to know how much of your money it can protect before you sign up to anything¹⁴. For insurance, the check is straightforward in principle. Search the FCA register using your insurance provider's name; if the status shows "authorised", the FSCS may compensate if the firm fails³.

The FSCS also runs an online protection checker where you can look up a firm by name¹⁵. Be aware of the mutual insurer gap described above: mutual insurers do not appear in the checker, so if a firm you cannot find is a mutual, contact it directly rather than assuming the worst¹².

There is also a disclosure rule working in your favour. FCA rules on the information firms must give require that, for pure protection contracts and policies sold to commercial customers, the policy summary states that, should the insurance undertaking be unable to meet its liabilities, the consumer may be entitled to compensation from the compensation scheme, or that there is no compensation scheme¹⁶. So the documents you receive when buying certain types of cover must tell you where you stand.

A few practical points are worth adding. First, checking takes minutes and costs nothing. Second, the check is about the insurer, not the brand on the paperwork: some policies are underwritten by a different company from the one whose name appears on them, and the FSCS check needs the underwriter's details. Third, if you are buying through a broker, the broker's own protection is a separate question, covered earlier on this page. The FSCS publishes questions you can ask a firm before you commit, including whether FSCS protects the product, how much money is protected, and what would happen to your money if the provider's business fails¹⁴.

Claiming: usually automatic and always free

The FSCS describes its service as completely independent and free¹⁷, and it is funded by the financial services industry rather than by the people it compensates⁶. Customers who claim directly keep 100% of any compensation owed¹⁸. Nobody needs to pay a claims management company or any other intermediary to claim from the FSCS.

In most circumstances, customers will not need to make a claim at all¹⁸. The FSCS works with the failed firm, the FCA and the insolvency practitioner to identify policyholders and verify claims⁹. Where a firm is in administration or liquidation, the FSCS works closely with the administrator or liquidator to verify eligible claims¹⁹. Where a small firm fails with no insolvency practitioner appointed, the FSCS works with the firm's own officials to obtain the records it needs¹⁹.

Where a claim is needed, the process is designed to be simple:

1. Check the FSCS website to confirm the firm has failed and is covered.
2. Claim online, where the FSCS states it will tell you straight away if you are eligible⁷.
3. Provide the policy details and evidence of the loss.
4. The FSCS verifies the claim against the failed firm's records, working with the insolvency practitioner where there is one⁹.

The FSCS notes that its online application takes between 1 and 2 hours to complete¹⁷. There is no fee at any stage. If you cannot use the online service, the FSCS can be contacted on 0800 678 1100 or at communication@fscs.org.uk⁵.

For comparison, deposit claims at failed banks, building societies and credit unions are paid automatically, with money returned within seven working days in most cases⁶. Insurance claims take longer because each one must be verified individually, but the principle is the same: the scheme comes to the policyholder, not the other way round.

Scams that use the FSCS name

A firm failure is a moment of confusion, and scammers exploit exactly that. The FSCS warns that scammers can use the name of a legitimate firm and sometimes the FSCS logo to try to get you to part with your money¹⁵. The FSCS has also seen a rise in scams involving spoofed telephone numbers, where a fake caller ID makes it look as though a call is coming from the FSCS²⁰.

The FSCS does not cold-call people to ask for money or personal details in connection with a failure, and it does not charge for compensation. Anyone asking for a fee to release FSCS money, or for bank details over an unexpected call claiming to be from the scheme, is a warning sign. The safe route is to contact the FSCS yourself using the published phone number and email address⁵.

There is a second, harsher limit worth knowing. In most situations the FSCS cannot compensate people for money lost to scams or fraud. The exception is where bad advice came from an authorised financial adviser to invest in something that turns out to be a scam²⁰. So a person who paid a fake "claims handler" a fee, or who was defrauded by a firm that was never authorised, generally has no FSCS route to redress. The scams and fraud section explains where else to turn, including Action Fraud.

Where FSCS protection stops

The scheme's protection has hard edges, and it is worth listing them together. Protection stops at each of the following:

• Non-PRA-authorised insurers. The FSCS can only protect you if the PRA has authorised your insurance provider³.
• Excluded classes of insurance. Goods in transit, marine, aviation, credit insurance and reinsurance are not eligible³.
• Large businesses. Usually excluded, with limited exceptions for deposits and insurance⁴. For general insurance other than the compulsory element, small companies must have an annual turnover of less than £1m⁶.
• Old failures. Claims against firms that failed before 1 December 2001 fall under the predecessor schemes' rules⁴. For insurance intermediaries, only business conducted on or after 14 January 2005 is covered⁴.
• Overseas insurers. The FSCS covers only firms authorised by the FCA or PRA to do business in the UK⁶.
• Scam losses. In most situations the FSCS cannot compensate for money lost to scams or fraud²⁰.

The level of protection itself is also under review. In a 2023 discussion paper, the PRA said it was concerned there may be an inappropriate level of policyholder protection provided by the FSCS in several areas, including insurance backed guarantees, home insurance (buildings and contents), motor insurance excluding third party, private health insurance, travel insurance and public liability insurance²¹. The PRA's statutory objectives include contributing to the securing of an appropriate degree of protection for policyholders²¹, so the balance between 90% and 100% protection may not be permanent. Any change would be made by the regulators, not by the FSCS.

One final point on claims that were already in progress. A policyholder can cancel a policy and set up a new one with a different insurer whenever they want, even if a claim is ongoing, though the claim will affect their no-claims bonus²². If your insurer fails mid-claim, the FSCS route described above is the one that applies to the outstanding claim, and the complaints process and the Financial Ombudsman Service remain available for disputes about how a claim was handled before the failure.