Experts welcome FCA confirmation of leasehold buildings insurance reforms

The FCA this morning confirmed new measures to support leaseholders in the multi-occupancy buildings insurance market.

The regulator said that, from the new year, 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 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, said “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.

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.

Experts welcomed the news. Bob Singh of Uxbridge-based mortgage broker, Chess Mortgages, said: “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, director at Canterbury-based mortgage and protection broker, Release Freedom, was also pleased by the announcement, but still encouraged leaseholders to take out their own policies: "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 Norwich-based Yellow Brick Mortgages, was also upbeat: “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.”

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