145% rise in compensation claims

The financial services safety net has seen a 145% increase in compensation claims in the last year, driven by a wave of payment protection insurance (PPI) cases.

Nearly 97,000 new claims were made to the Financial Services Compensation Scheme (FSCS) during 2011/12, compared with just under 39,500 over the previous financial year, the body said in its annual report and accounts.

Some 84% of new claims received by the body, which protects customers in cases where firms have gone under, related to PPI in 2011/12, and the FSCS said it expects PPI claims to continue rising into 2013.

More than two thirds of new claims received by the FSCS in the last year related to Welcome Finance, which was declared in default in March 2011, having mis-sold a large number of PPI policies.

But the FSCS, which is funded by an industry levy, said that an "innovative" restructuring arrangement has meant the cost of compensating claimants and processing claims was met by Welcome, saving the industry £40 million so far.

Some £347 million was paid out by the FSCS to more than 86,000 consumers during the last year, down from a total payout of £535 million in 2010/11.

The compensation body said the drop reflects a fall in the number of higher-value claims related to major banking failures at the start of the financial crisis.

Mark Neale, FSCS chief executive, said: "The 2011/12 financial year continued to be a challenging one for FSCS.

"We dealt with a great number of complex issues across the financial landscape, and responded to these efficiently and effectively."

Consumers took out PPI to help repay loans if they fell ill for a long period or became unemployed, but a widespread mis-selling scandal emerged.