Clampdown on rip-off leasehold buildings insurance
The Financial Conduct Authority (FCA) has set out how it plans to reform the leasehold buildings insurance market.
From the new year, insurance firms will be forced “to act in leaseholders’ best interests” when selling insurance for blocks of flats. Firms will need to treat leaseholders as customers when designing products and they will be banned from recommending an insurance policy based on commission or remuneration levels.
Under the new rules, insurers will be required to ensure that their insurance policies provide “fair value” to leaseholders and provide important information about their policy and its pricing, including the detail of any commission paid for leaseholders.
The FCA’s action follows its review of the multi-occupancy buildings insurance market. The study found that leasehold buildings insurance premiums had risen significantly since the Grenfell tragedy, with leaseholders facing substantially higher costs and poor value.
Sheldon Mills, FCA executive director of consumers and competition, said: “Insurance firms must now act in leaseholders’ best interests and ensure that their policies provide fair value. Our reforms will help to strengthen the insurance market by providing new protections for leaseholders. We will not hesitate to take action if firms breach these rules.”
Ban on payment of third-party commission
Following a review into broker remuneration practices, the FCA expects brokers to immediately stop paying commissions to third parties (including managing agents and freeholders) where they do not have appropriate justification and evidence for doing so in line with its rules on fair value.
In addition to these measures, the Department for Levelling Up, Housing and Communities has announced that it intends to ban the payment or sharing of insurance commissions with property managing agents, landlords and freeholders.
Mervyn Skeet, ABI director of general insurance, said: “Leaseholders deserve greater transparency on the details of their buildings insurance policy and so we welcome this confirmation from the FCA of the final rules. We recognise the acute financial and emotional strain that is being placed on leaseholders and want to play our part in helping to reduce insurance costs whilst affected buildings await work to resolve fire safety issues. This is an important step, but it remains the case that the ultimate solution to the problem is to remediate buildings to a standard that saves both lives and property and we urge government to progress this urgently.
“Producing a new range of clear, accurate and tailored consumer communications within a three-month implementation period is very challenging but our members will do everything they can to introduce these changes within the required deadline. We’ll continue to discuss this with our members and the FCA to ensure the process is implemented as smoothly as possible whilst keeping focused on delivering the new risk-sharing facility. Work on this is progressing and we will update on launch plans as soon as possible.”