The Government has identified three main problems with the way in which buildings insurance is offered to leaseholders of multiple-occupancy buildings. Recommendations have been made to the Association of British Insurers (‘ABI’), the British Insurance Brokers’ Association (‘BIBA’) and the Financial Conduct Authority (‘FCA’) to help address these concerns.
Problem 1: Lack of data in the market
The Secretary of State for Levelling Up, Housing and Communities (‘The Secretary of State’) has acknowledged that there is an overall lack of data in the insurance market. This suggests that insurance brokers are not pricing their premiums using reliable comparisons and leaseholders are unknowingly paying higher premiums.
- The recommendation: The ABI and BIBA must improve the availability and quality of data published by insurers. They should create new, higher standards for insurance brokers to comply with, making it clear which information should be made available and what the consequences will be for failure to cooperate. This will arm leaseholders with more information to enable them to better scrutinize insurance costs.
Problem 2: Sharing commission with freeholders and managing agents
The Secretary of State has detected a ‘highly questionable practice’ whereby insurance brokers are sharing their commission with freeholders and managing agents. This inflates the insurance premiums paid by the leaseholders.
- The recommendation: Further investigations are required to establish how common these practices are. There should be more stringent measures in place to prevent commission sharing and the detrimental impact it is having on leaseholders of multiple-occupancy buildings.
Problem 3: Lack of regulatory protections for leaseholders
Regulatory protections are out of date and require updating.
- The Recommendation: The FCA should implement better regulatory protection to ensure that leaseholders are not taken advantage of. For example, there should be procedures in place to investigate unusually high broker commissions.
What will the changes mean for leaseholders?
It is hoped that these recommendations will help to create a fairer and more competitive marketplace for buildings insurance in the UK. The Government is showing its commitment to ensuring buildings insurance is widely available, affordable and offers fair value to leaseholders.
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