The Financial Conduct Authority (FCA) is proposing new
rights and protections for leaseholders to improve the
transparency of the multi-occupancy leasehold buildings insurance
market.
Under the proposals, leaseholders would be defined as customers
of buildings insurance. The rule changes would explicitly require
insurance firms to act in leaseholder’s best interests, and bar
firms from recommending a policy based on commission or
remuneration levels. Insurers and brokers would also need
to provide more information about insurance policies to
leaseholders, including detail of any commission paid.
An FCA review also published today found average per policy
insurance broker commission rose by 46% over the review period.
Firms in the sample paid over £80m of commission away to other
parties, usually the freeholder or the property managing
agent.
Significant shortcomings by some brokers in applying fair value
rules to their remuneration practices, and the impact on those
ultimately paying the costs of multi-occupancy buildings
insurance, were also identified.
The FCA expects brokers to immediately stop paying commissions to
third parties (including property managing agents and
freeholders) where they do not have appropriate justification and
evidence for doing so in line with our rules on fair value. The
FCA will undertake further reviews across various products and
will consider the full range of regulatory tools available to it
as this work is progressed.
Following this review, the FCA will take appropriate action where
firms have significant weaknesses in meeting their regulatory
obligations, including on fair value. The FCA will engage the
senior managers of other firms requiring improvement so they are
fully meeting their obligations.
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 freeholds. The FCA will work with DLUHC to ensure that this
action is fully delivered, including changing FCA rules if
required.
In September 2022, the FCA’s report on multi-occupancy
buildings insurance found that leasehold buildings insurance
premiums had risen significantly since the Grenfell tragedy, with
leaseholders facing substantially higher costs.
The FCA is now consulting on the policy proposals set out in its
previous report. This forms part of the FCA’s work to ensure that
consumers are protected and markets function
effectively.
Sheldon Mills, Executive Director of Consumers and
Competition, said:
“We want to give leaseholders more rights and the information
they need to exercise them. Importantly, under our proposals
those selling multi-occupancy insurance will have to act in
leaseholders’ best interests.
“Our review revealed large commissions paid by some brokers to
freeholders and third parties, like managing agents, with little
evidence of any value added to justify these payments We are
taking action against these practices and we won’t hesitate to
take further action if brokers don’t comply with our
rules.”
Notes to editors
- Whilst leaseholders are not usually the ‘customer’ buying the
insurance, the FCA wrote to insurers and
brokers in January 2022 making it clear that firms should take
leaseholders into considering when designing and distributing
products, and determining whether they are providing fair
value.
- The review of broker remuneration analysed data from 16
insurance brokers about their work on leasehold multi-occupancy
buildings insurance, considering data on policies and
remuneration from 1 January 2019 to 30 September 2022.
- On 28 January 2022, the Secretary of State for Levelling Up,
Housing and Communities wrote to the FCA asking it
to review the market for multi-occupancy buildings insurance
and consider recommendations to achieve the goal of widely
available and affordable cover.
