FCA sets out multi-occupancy leasehold insurance reforms

Under the proposals, 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 FCA review 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.

We expect 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. We will undertake further reviews across various products and will consider the full range of regulatory tools available to us as this work is progressed.

Following this review, we will take appropriate action where firms have significant weaknesses in meeting their regulatory obligations, including on fair value. We will engage the senior managers of other firms requiring improvement so they are fully meeting their obligations.

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 freeholds. We will work with DLUHC to ensure that this action is fully delivered, including changing FCA rules if required.

In September 2022, our report on multi-occupancy buildings insurance[1] found that leasehold buildings insurance premiums had risen significantly since the Grenfell tragedy, with leaseholders facing substantially higher costs.

We are now consulting on the policy proposals set out in its previous report. This forms part of the our work to ensure that consumers are protected and markets function effectively.

Sheldon Mills, Executive Director of Consumers and Competition, said:

‘We want to give leaseholders more rights and the information they need to exercise them. Importantly, under our proposals those selling multi-occupancy insurance will have to act in leaseholders’ best interests.

‘Our review revealed large commissions paid by some brokers to freeholders and third parties, like managing agents, with little evidence of any value added to justify these payments We are taking action against these practices and we won’t hesitate to take further action if brokers don’t comply with our rules.’

Notes to editors

1. Read CP23/8: Multi-occupancy building insurance[2].
2. Read our multi-occupancy buildings insurance broker remuneration review[3].
3. Whilst leaseholders are not usually the ‘customer’ buying the insurance, we wrote to insurers and brokers[4] in January 2022 making it clear that firms should take leaseholders into considering when designing and distributing products, and determining whether they are providing fair value.
4. The review of broker remuneration analysed data from 16 insurance brokers about their work on leasehold multi-occupancy buildings insurance, considering data on policies and remuneration from 1 January 2019 to 30 September 2022.
5. On 28 January 2022, the Secretary of State for Levelling Up, Housing and Communities wrote[5] to us asking us to review the market for multi-occupancy buildings insurance and consider recommendations to achieve the goal of widely available and affordable cover.
6. Find out more information about the FCA[6].