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FCA raises concern over insurance brokers sharing commission with freeholders of multi-occupancy buildings
The regulator has raised significant concerns over the way insurance brokers are operating in the multi-occupancy buildings market.
The price of cover for these buildings has soared in the wake of the Grenfell tragedy.
A review by the Financial Conduct Authority (FCA) found that between 2016 and 2021 the average price of buildings insurance has more than doubled for these properties, with the typical cost now £15,300.
In part, this is due to insurers leaving the market or having a reduced appetite to take on new business.
The FCA also examined how brokers often share commission from an insurer with the freeholder or property managing agent.
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The regulator said managing agents are paid a service charge by leaseholders for activities related to building upkeep, including sourcing insurance.
In the report it added: “It is often not clear why it is appropriate or necessary for property managing agents or freeholders to receive additional remuneration via broker commissions. We are very concerned that this practice does not represent value ultimately for the leaseholder.”
As the cost of insurance has surged, so has the commission.
However, leaseholders are unlikely to be aware that freeholders or managing agents are receiving this commission.
And these homeowners generally have no voice in choosing the insurer or broker, despite the fact that this determines the amount they have to pay for insurance and the benefits they can receive from it, the FCA added.
Transparency, collaboration and information
As part of plans to help leaseholders with the cost of insurance, the regulator has suggested a cross industry pool of insurers should take on multi-occupancy buildings.
The FCA said there are also needs to be greater transparency and information for leaseholders on the price of insurance, so that it is easier for them to challenge high insurance costs.
The regulator has also suggested the government legislate regarding renumeration for unregulated property managers and freeholders.
It was also recommended that it be made a legal requirement for freeholders and property managing agents to provide information on the insurance policy to leaseholders.
This should include passing on the information which regulated insurers and brokers provide to them.
Sheldon Mills, FCA executive director of consumers and competition, said: “Since the Grenfell tragedy, hundreds of thousands of leaseholders have had to endure the difficulties of living in buildings with known fire safety issues and these problems have been made worse by increases in the cost of their insurance.
“We will consult on measures to improve transparency for leaseholders about the price of their insurance and how leaseholders can be given greater protection.
“We expect the insurance industry to work quickly with us and government to develop solutions to this issue, including developing pooling arrangements and reducing commission, that will make affordable insurance cover more widely available.”