The Financial Conduct Authority (FCA) is the UK’s financial regulatory body, operating across the country independently of the government. It recently confirmed it would be pushing ahead with proposed reforms to leasehold buildings insurance.
There weren’t really any massive surprises here, since all the proposals had been extensively flagged up in advance. The move follows a comprehensive review of the insurance market for buildings in multiple occupation, plus a consultation paper. And the idea is to offer a better deal to the relevant group of leaseholders, plus others in a similar situation.
Essentially, what the changes mean is that, as of now, insurance providers will need always to act in the best interests of leaseholders. In other words, treating them as customers when it comes to product design. At the same time, no provider will be allowed to recommend an insurance policy based on commission or other remuneration.
What exactly do the new arrangements say?
- Greater transparency will make it easier for leaseholders to highlight and question below-par practice. At the same time, insurance firms will be incentivised to offer better deals.
- Insurance providers will have to release products which are in line with best practice and leaseholders’ needs, as well as those of similar policy stakeholders. Additionally, they must price these fairly, while remuneration practices should not lead to poor outcomes.
- Insurers will also have to supply key information about their policies and charges, which will have to include details about any commission received. Indeed, the FCA expects brokers to stop paying commissions to third parties such as freeholders and managing agents with immediate effect where these cannot be justified under the new rules.
Despite the lack of any huge surprises in the latest release about this issue, there are some amendments. These include:
- The definition of ‘leaseholder’ has been updated to clarify that it means residential leaseholders in multi-occupancy buildings. Commercial leaseholders, in contrast, aren’t included.
- ‘Policy stakeholders’ refers to private individuals acting outside whatever they do professionally. In other words, commercial operators are not deemed to be policy stakeholders.
- Compulsory remuneration disclosure for leaseholders is extended to encompass all forms of financial incentive or remuneration.
- Firms can now provide estimated premium breakdown at building or residential unit level if they can’t pinpoint a precise sum for this.
The FCA is set to carry out further reviews across a number of products, and will look at the whole range of regulatory tools available to it as work progresses.
The organisation’s Sheldon Mills, Executive Director of Consumers and Competition, said in a statement:
“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.”
Meanwhile, The Property Institute said that leaseholders would need to be given full policy details, adding that it was clarifying whether that could be done online or by posting documents. And it stressed that the new rules should not be problematic to insurers who already comply with guidance like the ARMA Consumer Charter & Standards and RICS Service Charge Code, which state that remuneration must be proportionate to work completed. However, a change in some processes will be needed so that fair value for leaseholders can be proven. (ARMA, the Association of Residential Managing Agents, is the leading professional association for residential leasehold management.)
Last autumn, the Department for Levelling Up, Housing and Communities (DLUHC) announced that by the end of last year a dozen insurance brokers had voluntarily signed a separate pledge to prevent the sharing of commissions with those who arrange or place buildings cover for blocks with known fire-safety risks which either have four storeys or are higher than 11 metres.
At the same time, that pledge capped at 15% the premium which brokers earn for their work in making the insurance arrangements. (One FCA report revealed that this sum can represent up to 60% of the premiums leaseholders pay.)
Oakfield says
At Oakfield Estate Agents, we believe these new rules should make life easier for leaseholders, without placing an undue burden on the legitimate work of insurers, so we broadly welcome them.
But we appreciate that, as mentioned above, it could involve a change in processes. So we’re happy to chat to our block management clients about what the reforms could mean for them.
We’re independent, operate across East Sussex and have a track record in the property sector here dating back to the mid-1990s. Plus we have a string of professional accreditations to our name. Above all, we keep residents’ well-being and safety at the heart of all we do. We work with investment landlords, residents’ management companies and Right-to-Manage organisations in running residential blocks and estates across East Sussex.
Get in touch today to learn more about what we could do for you.