FCA to clamp down on excessive insurance coverage prices for leasehold flats

The UK’s high monetary regulator stated on Friday it might beef up safety for leaseholders in blocks of flats from paying extreme insurance coverage prices as a part of a clampdown on insurance coverage brokers overcharging for the merchandise and handing giant commissions to landlords.

The investigation into brokers masking a couple of third of the market discovered companies had not produced sufficient proof to justify a virtually 40 per cent rise between 2019 and 2022 of their charges from these insurance coverage merchandise, the Monetary Conduct Authority stated in an accompanying report.

It discovered brokers included in its pattern, handed on £80.7mn in commissions, or greater than third of complete commissions, to 3rd events over the assessment interval. It stated brokers had been “usually unable to articulate” what landlords had been doing to justify these sums being handed on.

Insurance coverage for multi-occupancy buildings, which covers residents in opposition to occasions corresponding to water leaks, has turn out to be a key difficulty in a rising scandal over the extreme service prices landlords have levied on leaseholders.

Tenants of flats should pay in the direction of a gaggle buildings insurance coverage coverage they haven’t any management over deciding on nor transparency over the contract and any commissions paid. These insurance policies have turn out to be far costlier in recent times, particularly for residents of cladded buildings after the 2017 Grenfell Tower tragedy.

Current authorized victories introduced by particular person leaseholders have thrown gentle on constructions the place freeholders and managing brokers have taken substantial commissions on insurance coverage merchandise.

The FCA stated brokers had proven “important shortcomings” in making use of fair-value guidelines to what they cost for their very own position in securing insurance coverage and what they pay to others.

The report stated the rise in brokers’ charges had outpaced the rise in prices over the interval. The FCA recognized “deficiencies in [brokers’] product worth evaluation work, shortcomings of their recording and evaluation of their very own prices and inadequate scrutiny of the commissions they pay to others”.

It was “doubtless” that brokers would want to cut back their percentage-based fee charges if they may not show a adequate profit to clients, the regulator stated.

Below the proposed regulation, brokers discovered to be taking an excessive amount of from leaseholders might face enforcement motion resulting in fines and bans. However the FCA stopped in need of asserting a cap on commissions, citing “sensible considerations” given the various cut up of tasks between brokers and landlords. The latter don’t fall throughout the regulator’s remit.

The FCA stated it might seek the advice of on the proposed modifications with a view to introducing the measures later this 12 months.

The federal government, which pledged in January to ban the commissions and substitute them with a flat payment, welcomed the clampdown as a “first step”, however stated it didn’t go far sufficient to guard leaseholders. It urged the regulator “to take quick enforcement motion on the unreasonable practices highlighted in [its] report”.

Martin Boyd, chair of the Leasehold Data Partnership, a residents’ marketing campaign group, stated he was happy the regulator had “accepted one thing that we’ve got argued for 10 years [was] an issue,”

Mick Platt, director of the Residential Freehold Affiliation, which represents landlords, stated it welcomed the transfer “to enhance the transparency of the multi-occupancy leasehold buildings insurance coverage market.”

The regulatory modifications are a part of a broader push to overtake the leasehold system. Housing secretary Michael Gove has stated the “outdated feudal system” ought to be scrapped and indicated he desires to usher in laws later this 12 months.

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