FCA unveils leasehold buildings insurance reforms

From the new year, insurance firms will be forced to act in leaseholders’ best interests, treat them 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 their policies provide fair value to leaseholders, and will have to offer them important information about their policy and its pricing — including the detail of any commission paid.

In addition, the FCA expects brokers to immediately stop paying commission to third parties (including property managing agents and freeholders) where they do not have appropriate justification and evidence for doing so in line with the FCA’s rules on fair value — this decision follows a review into broker remuneration practices. 

This action is a result of the regulatory body’s 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.

The FCA will undertake further reviews across various products and will consider the full range of regulatory tools available as this work is progressed.

Sheldon Mills, executive director of consumers and competition at the FCA, said: "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."

Stephen Perkins, managing director at Yellow Brick Mortgages, commented: “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. 

“While leaseholders will still not be in control, these provisions mean the freeholder and insurers need to ensure the policy is most suitable.”

Bob Singh, director at Chess Mortgages, added: “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.”