| Link(s): | FCA sets out multi-occupancy leasehold insurance reforms | FCA CP23/8: Multi-occupancy building insurance | FCA Multi-occupancy buildings insurance – broker remuneration | FCA |
Context
In the FCA’s report on multi-occupancy buildings insurance, published in September 2022, it was found that leasehold buildings insurance premiums had risen significantly since the Grenfell tragedy, with leaseholders facing substantially higher costs. Following on from the report, the FCA is proposing new rights and protections for leaseholders to improve the transparency of the multi-occupancy leasehold buildings insurance market.
Key points to note
Under the FCA’s proposals, laid out in its Multi-occupancy building insurance consultation paper, 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 need to provide more information about insurance policies to leaseholders, including detail of any commission paid.
An associated FCA review on broker remuneration also published today found 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 by 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, were also identified.
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 its rules on fair value. Additionally, following this review, the FCA will take appropriate action where firms have significant weaknesses in meeting their regulatory obligations, including on fair value and will engage the senior managers of other firms requiring improvement so they are fully meeting their obligations.
Next actions
Firms involved in the sale of multi-occupancy buildings insurance should review these publications and take action where necessary. Firms wishing to comment on the Consultation Paper, must do so by 9th June 2023.