| Link(s): | FCA confirms leasehold buildings insurance reforms | FCA PS23/14: Multi-occupancy building insurance: Feedback to CP23/8 and final rules (fca.org.uk) |
Context
The FCA has confirmed new measures to support leaseholders in the multi-occupancy buildings insurance market. From 31st December 2023 insurance firms will be forced to act in leaseholders’ best interests, treat leaseholders as customers when designing products, and will be banned from recommending an insurance policy based on commission or remuneration levels. 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. The detail below is high-level, but will be supported by the publication of a UKGI Bulletin as soon as possible.
Key points to note
- The FCA is clarifying the ‘leaseholder’ definition to set out more clearly that it covers residential leaseholders only. This means that the disclosure rules only apply to multi-occupancy building insurance policies for residential leaseholders. Firms will not need to provide disclosures intended for commercial leaseholders.
- The FCA is including an additional part to the definition of ‘policy stakeholder’ so that it only captures natural persons who are acting outside of their trade or profession. This is to clarify that commercial entities (including commercial leaseholders) will not be considered policy stakeholders. There are potential wider consequences to the introduction of this defined term.
- The FCA is introducing guidance to make clear that the required remuneration disclosure for leaseholders must include all forms of remuneration or financial incentive, including contingent remuneration (payment that depends on a policy being taken out) and other remuneration earned post-contract. This will be part of the ‘remuneration disclosure’ requirements
- The FCA is making provision in the disclosure rules to allow firms to estimate the premium breakdown at building or dwelling level if they are unable to identify an exact figure. The disclosure requirements will otherwise be to provide:
- a summary of the features of the policy, including main benefits, coverage and exclusions of the policy, duration and insured sum;
- the policy premium; where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level;
- the remuneration which any authorised intermediaries received for arranging the insurance, as well as remuneration they pay to other parties including unregulated PMAs and freeholders;
- information about potential conflicts of interests, such as ownership links between the intermediary and the insurer, and about the insurers with whom the intermediary may place the policy; and
- the number of alternative quotes they have obtained (with further details of these to be provided on request) and a brief explanation of why they have proposed or recommended that the policy is in the interests of both the freeholder and leaseholders.
- In addition to these measures, 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 will work with DLUHC to ensure that this action is fully delivered, including changing FCA rules if required. This change, therefore, is not yet included in the new FCA provisions and requirements.
Next actions
None – for information and awareness.