FCA moves to make leaseholder block insurance fairer

The Financial Conduct Authority (FCA) is clamping down on unscrupulous firms who recommend buildings insurance policies based on commission or renumeration levels, costs which are usually born by the leaseholder.

Insurers will also 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.

GRENFELL TRAGEDY

The FCA’s action follows its review of the multi-occupancy buildings insurance market, which found that leasehold buildings insurance premiums had risen significantly since the Grenfell tragedy, with leaseholders facing substantially higher costs and poor value.

Sheldon Mills, Executive Director of Consumers and Competition, says: “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.”

Following a review into broker remuneration practices, 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.

BAN PAYMENT

Meanwhile, 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. The FCA says it will work with DLUHC to ensure that this action is fully delivered, including changing FCA rules if required.

Stephen Perkins, managing director of Yellow Brick Mortgages, told Newspage: “This is positive news. For too long, leaseholders have paid for a policy through their service charges or direct to the freeholder, with no control on what policy is provided or its cost.

“Whilst leaseholders will still not be in control, these provisions mean the freeholder and insurers need to ensure the policy is most suitable.”

ALWAYS A SWIZZ

And Simon Bridgland, Director of broker Release Freedom, adds: “Block policies, where the costs are passed onto the leaseholders, have always been a swizz.

“Over the top premiums, no information given to the occupants and no real reassurance that their home is adequately covered.

“The best advice I can give to all leaseholders is to also take out your own separate policy, with the terms of cover you are happy with.

“It does mean that you are paying twice for cover, but at least you’ll have a policy you can rely upon. There is not much worse than a policy that doesn’t give you the cover you thought you had when you need it the most.”