The Financial Services Compensation Scheme (FSCS) spent nearly £400m on management expenses in the 2010/11 year as it took in nearly £1bn in levies and paid out over £535m in compensation.
The costs have been revealed in the government body's financial results for last year which saw it deal with 39,499 new claims, an increase of 25%, and settled a total of 47,055 claims, double the number the previous year.
In Payment Protection Insurance (PPI), the FSCS saw a 20% increase in new claims and overall, the general insurance intermediation sub-class, received 8,201 new claims in 2010/11, up from 2,513 the previous year.
Compensation in this sub-class hit £35.8m in the last year on levies of £57.23m, a difference of over £20m.
Total compensation payments across all classes came in at £535.36m taken from levies of £919m.
Management expenses, which the FSCS defined as the cost of running the Scheme, operational investments and interest on HM Treasury loans, totalled £392.1m.
The FSCS spent £18m on a ‘change programme' which the FSCS has implemented to transform and strengthen the "Scheme's processes, structure and operations" to meet the requirements of today's regulatory environment.
This was an increase on the £12.4m spent on the programme last year.
Banking failures
Other management costs came in at £39.96m an increase on £32.68m spent the previous year. This was mainly staff costs and outsourcing costs.
The remainder, some £334m, was attributable to the banking failures of 2008/09.
The FSCS chairman, David Hall, said: "A key focus of the FSCS board is on our accountability to the industry which funds us. We must be accountable for our costs and for the allocation of our costs across the industry."
He hinted, however, that the increased costs associated with the FSCS over the last few years looked set to remain as the Scheme attempted to deal with the long-tail fallout of the banking crisis.
"Following the defaults of five banks in 2008, the FSCS borrowed money from HM Treasury to safeguard the deposits of more than four million consumers. From 31 March 2012 we will agree to repay the principal amounts," he said.
"We are in regular dialogue with HM Treasury about the details of the repayment schedule and we are aiming to update the industry later in 2011 once the repayment terms are finalised.
"So far, we have made £1.79bn in recoveries from the banking defaults, which have made helpful reductions to the loans."
This story originally appeared on COVER's sister title, Insurance Age.
