Insurance brokers could face caps on commissions as FCA reviews high rise insurance market
Insurance brokers could face rules limiting commissions amid the City watchdog’s review into tower block insurance coverage.
The Financial Conduct Authority (FCA) was asked to review the insurance market for blocks of flats earlier this year, after housing minister Micheal Gove said he was “extremely concerned” by accelerating costs faced by leaseholders.
In an update, the FCA said price increases could arise from insurers shying away from bidding for new business of multi-occupancy building or charging particularly high premiums to insure them,” due to perceptions around safety in the wake of the 2017 Grenfell Tower.
However, the financial regulator was also concerned harm was being caused by high commission paid to brokers and property managers, as well as “a lack of competitive pressure on prices.”
Rules to limit commission may be considered, if commission paid to brokers was found to be “a significant cause of harm to leaseholders,” a letter to the secretary of state said.
Measures to be mulled could include a cap on the level of commission or banning certain practices, such as commissions based on a percentage of a premium.
The British Insurance Brokers’ Association (BIBA) said the letter was the first it had heard of any potential limits on broker commission.
“However, in many instances the primary insurers look to the broker to do much of the work and incur much of the cost to enable cover to be placed – for example arranging surveys of the property and conducting detailed analysis to satisfy the insurer’s information requirements,” Graeme Trudgill, executive director of BIBA.
Brokers were “working harder than ever,” to place insurance, as primary insurers have reduced their exposure in tower blocks.
The insurance and reinsurance premium was the main cost to the policyholder, the BIBA said. It was working with other parties to “look at solutions to provide more affordable property insurance premiums for high rise residential buildings that require remediation work from a fire safety perspective.”
The Association of British Insurers (ABI) said it was awaiting the FCA’s final report with “much interest”.
“Insurers recognise and sympathise with the challenges leaseholders are facing with increased buildings insurance costs. We have been working with the insurance industry, government and FCA to identify options to help leaseholders until the necessary remediation work has been completed,” James Dalton, ABI director of general insurance policy, said.