The Financial Conduct Authority (FCA) has proposed 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 leaseholders’ best interests, and bar firms from recommending a policy based on commission or remuneration levels.
Insurers and brokers would also have to provide more information about insurance policies to leaseholders, including detail of any commission paid.
An FCA review found that 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 were also identified among 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.
Sheldon Mills, executive director of consumers and competition at the FCA, 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.”
He added: “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.”
