Insure over FSCS limit?

gravlax

The limit for compensation is only £85k which isn't going to be much comfort if your platform goes bust/fraud and you were in retirement with a £1m SIPP or investments. You can spread investments across platforms, but may still be over exposed. The risk is a small one, but does anyone know of any insurers with policies for individuals to insure for any excess loss for an FSCS payout event? The insurance company may go bust too, but not going down that rabbit hole as this is a genuine question. 

dunstonh

The limit for compensation is only £85k which isn't going to be much comfort if your platform goes bust/fraud and you were in retirement with a £1m SIPP or investments. 

Why do you think that? 
If you are in liquid investments that trade daily then there is no problem.

Its only on platforms with a high volume of illiquid assets or where you have used niche investments within a scheme where there could be a problem.

 The risk is a small one, but does anyone know of any insurers with policies for individuals to insure for any excess loss for an FSCS payout event? 

If you are that paranoid about it, then why not stick with a personal pension or stakeholder pension where you get 100% FSCS protection and no upper limit?

friolento

Assuming your money was actually invested and not sitting in cash in a platform account, your investments still exist if the platform goes bust.It will just be a bit of hassle to get the investments moved to a different platform. Nobody will insure an actual investment, and you can significantly spread your overall risk by investing in global tracker funds.

gravlax

dunstonh said:

The limit for compensation is only £85k which isn't going to be much comfort if your platform goes bust/fraud and you were in retirement with a £1m SIPP or investments. 

Why do you think that? 
If you are in liquid investments that trade daily then there is no problem.

Its only on platforms with a high volume of illiquid assets or where you have used niche investments within a scheme where there could be a problem.

 The risk is a small one, but does anyone know of any insurers with policies for individuals to insure for any excess loss for an FSCS payout event? 

If you are that paranoid about it, then why not stick with a personal pension or stakeholder pension where you get 100% FSCS protection and no upper limit?

Stick with a personal pension or stateholder pension? How do you do this if you are retired with a SIPP?
 
You may be right that it is paranoid to consider the risk and that nothing could ever happen to Blackrock, Vanguard to result in a major wipe out of investors assets. But if the risk is so ridiculously small, I wondered if it was easily insurable by the consumer. From the tone of replies it sounds like no or don't waste the time bothering.

dunstonh

Stick with a personal pension or stateholder pension? How do you do this if you are retired with a SIPP?

You chose to buy a SIPP.  You could choose to buy a personal pension or stakeholder pension instead.   However, the range available is quite limited nowadays as insured pensions are not as popular as they once were as "SIPPs" became a fashion trend and providers rushed to have a product called SIPP (even though some of them are not proper SIPPs).

You may be right that it is paranoid to consider the risk and that nothing could ever happen to Blackrock, Vanguard to result in a major wipe out of investors assets.

You are not investing in Blackrock or Vanguard directly.  They manage the funds that contain the assets.  The assets are ringfenced and not used against the debts of the fund house if that fails.

But if the risk is so ridiculously small, I wondered if it was easily insurable by the consumer.

Its not insurable because the risk is so small that there is no commercial benefit to do so.

 From the tone of replies it sounds like no or don't waste the time bothering.

As long as you stick to the mainstream and use a platform that is profitable and doesn't have a high ratio of illiquid assets, then you should be fine.

Platforms with liquid investments are valuable assets, and a buyer would be found long before failure occurs. Platforms with illiquid investments are not attractive to potential buyers, and there have been issues and people suffering there. But these platforms tend to be small players, often unprofitable and non-mainstream.

If you are concerned about fund house risk then spread your investments across different fund houses.   IFAs do that and are often criticised on this site for doing it (i.e. having too many funds in a portfolio) but liquidity risk is something that IFAs have to consider for their clients whereas DIY investors do not.  DIY means you assess you own risks and take actions you think are appropriate.   No single fund house has the best funds in all areas.  So, if you are building a portfolio, you would have funds from different fund houses by default.     If you are using just one fund house then you are increasing the risk.  Although in many cases, it would be a small risk on an already small risk.   Its worth noting that fund level FSCS protection is £85k per fund house.   

Albermarle

friolento said:

Assuming your money was actually invested and not sitting in cash in a platform account, your investments still exist if the platform goes bust.It will just be a bit of hassle to get the investments moved to a different platform. Nobody will insure an actual investment, and you can significantly spread your overall risk by investing in global tracker funds.

Even if it was in cash, it would be sitting in the platforms client bank account(s) . I think they claim at least to have a policy that all customers cash is kept separate from the platform.

GeoffTF

dunstonh said:

But if the risk is so ridiculously small, I wondered if it was easily insurable by the consumer.

Its not insurable because the risk is so small that there is no commercial benefit to do so.

If the risk is very small, charging a big fat premium each year to cover against that risk should be very profitable, unless and until the insurance company has to make a really big payout (in which case the risk was not that small). I expect there are two reasons why insurance is not available. The first is that very few investors would be willing to pay big premiums for the insurance. The second is that there was a massive failure, the insurance company would be wiped out. The FSCS is industry funded, and the government has refused to stand behind the scheme.

masonic

GeoffTF said:

The FSCS is industry funded, and the government has refused to stand behind the scheme.

The government stands behind the scheme, but only to the extent that when there is a shortfall, the treasury will print the money required and loan it to the scheme.

Agree that an insurer wouldn't be in a position to make good on the insurance during the sort of catastrophe that would see their insurance used. They'd also need to understand the risk in order to be confidence in their pricing, which is too difficult when the circumstances that would lead to a payout are fairly inconceivable.

Hoenir

GeoffTF said:

dunstonh said:

But if the risk is so ridiculously small, I wondered if it was easily insurable by the consumer.

Its not insurable because the risk is so small that there is no commercial benefit to do so.

If the risk is very small, charging a big fat premium each year to cover against that risk should be very profitable, unless and until the insurance company has to make a really big payout (in which case the risk was not that small). I expect there are two reasons why insurance is not available. The first is that very few investors would be willing to pay big premiums for the insurance. The second is that there was a massive failure, the insurance company would be wiped out. The FSCS is industry funded, and the government has refused to stand behind the scheme.

When the Icelandic banking crisis hit there was insufficient money in the pot to meet the depositors claims. The Government stepped in and provided the money. The levy was increased on the participating members and the deficit recouped over a number of years subsequently. 

GeoffTF

masonic said:

GeoffTF said:

The FSCS is industry funded, and the government has refused to stand behind the scheme.

The government stands behind the scheme, but only to the extent that when there is a shortfall, the treasury will print the money required and loan it to the scheme.

The government has done so in the past. The FSCS  says "Set up by the government, we’re independent and our service is free to use":

https://www.fscs.org.uk/

If you believe that the government has guaranteed to meet any future shortfall in the fund, please provide a link. If so, the government's liability would be capped at £85K per account. An insurer would have no such cap. Insurance makes sense when there are lots of claims, and the average payout is known. It is difficult to provide insurance against an event which has never happened (a massive loss to fraud) but would be ruinously expensive if it did.

gravel_2

Out of interest...

"FSCS is permitted to access funds from HM Treasury, through the National Loans Fund or any other appropriate source, for a term and at an interest rate to be agreed at the time. The amount of the borrowing facility available to FSCS is determined by HM Treasury. As at 31 March 2024, this facility was not utilised. Any amounts drawn from this facility will be replenished by means of FSCS levies on the relevant class and recoveries in subsequent years."

It also has a 1.5bn (unused?) credit facility.