The Financial Conduct Authority (FCA) has announced reforms in the insurance market for multi-occupancy buildings, set to take effect in the new year.
Under the new regulations, insurance companies will be obligated to act in the best interests of leaseholders.
They will also be prevented from recommending insurance policies based on commission or other forms of remuneration.
The changes come after an FCA review found leaseholders were facing significantly higher costs for building insurance, particularly since the Grenfell tragedy.
Sheldon Mills, executive director of Consumers and Competition at the FCA, said: “Insurance firms must now act in leaseholders’ best interests and ensure that their policies provide fair value. We will not hesitate to take action if firms breach these rules.”
Additionally, the FCA expects brokers to immediately stop paying commission to third parties, like property managing agents and freeholders, unless there is appropriate justification.
The Department for Levelling Up, Housing and Communities (DLUHC) has also indicated it will ban the sharing of insurance commissions with property managers, landlords and freeholders. The FCA stated it will work with the DLUHC to ensure these rules are fully implemented.
Reaction:
Bob Singh, founder at Chess Mortgages:
“This is great news and will help bring fairness to embattled leaseholders who have suffered for too long at the hands of their management companies.
“All too often, we see sky-high insurance premiums without any justification or evidence that the best effort was made to get the most appropriate policy.
“It’s no surprise more and more freeholders are selling up as many see the writing is on the wall and that they may not be able to profiteer in future.”
Simon Bridgland, broker and director at Release Freedom:
“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.”
Stephen Perkins, managing director at Yellow Brick Mortgages:
“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.”
