Crackdown on insurance commissions could ‘devastate managing agents’

Housing Secretary Michael Gove’s investigation into ‘secret’ insurance commissions paid to managing agents could have a devasting financial effect on the industry, JMW Solicitors warns.

And the specialist property firm says that agents found to have taken so-called ‘secret commission’ may also be disqualified from Financial Conduct Authority (FCA) authorisation and Royal Institution of Chartered Surveyors membership.

EXPOSE AND STOP

Richard Glover (main picture), Partner, JMW Solicitors, says: “Once again Michael Gove is taking on the fight on behalf of leaseholders and this time, he intends to expose and stop the practice of managing agents, landlords and freeholders taking commissions from insurers and commercial brokers as he believes this is inflating insurance premiums payable by leaseholders.

This is another blow to residential managing agents.”

“This move comes as another blow to residential managing agents who are already under pressure in the current economic climate, as leaseholders in managed developments and the government itself target them as a result of industry practices on ‘secret commission’ on building insurance policies.”

Gove published the letter he sent to Nikhil Rathi, the Chief Executive of the FCA, from 19 April 2023 where he expresses his concern at the ‘role of commissions in significant premium increases’ and asks that the FCA ‘take immediate enforcement action against those brokers and managing agents that cannot demonstrate their commissions represent fair value, where they are regulated by the FCA and by RICS.’.

UNFAIR PRACTICES

The housing secretary hopes to bring an end to what he sees as ‘unfair practices’ within the industry and wants changes to be implemented by the Autumn of this year.

But Glover adds: “The concern here is that leaseholders are not aware of the ‘secret commissions’ and that as a result of them being paid, the Government believes that leaseholders, in effect, are paying over the odds for insurance.

The problem has been exacerbated by rising insurance costs.”

“The problem has been exacerbated by rising insurance costs resulting from the building safety crisis, higher premiums have resulted in higher commissions.”

And he warns ‘secret commissions’ in leaseholder building insurance could be the next big thing for opportunistic claims management companies.

He says: “We have become aware of several companies which are now actively pushing these claims on social media which will inevitably raise awareness amongst the leaseholder and legal community.

“There have always been claims pursued by leaseholders in relation to excessive insurance premiums and there have been several high-profile cases on this issue in recent times, however now Mr Gove is now publicly taking on the practice of ‘secret commissions’ we expect such challenges to become more prevalent.”