’Leaseholders are being badly let down,’ says Levelling Up, Housing and Communities secretary
Michael Gove said he was “outraged” after the FCA revealed that broker remuneration for insurance of multiple-occupancy residential buildings rose over a three year period.
In a letter sent to the FCA late last week (21 April 2023), the minister for levelling up, housing and communities said leaseholders were “being let down” after the regulator published the results of a review conducted on levels of remuneration in the sector.
It analysed data from 16 insurance brokers on policy data and remuneration between January 2019 and September 2022.
The report revealed that average broker commission per policy rose by 46%.
Over the same period, average broker remuneration per policy rose by 39% from £2,170 to £3,010.
“Absolute levels of remuneration, including commissions, have risen by nearly 40% across the period under review, despite reductions in commission percentages,” the report said.
In response, Gove said the report “compounded concerns” about the role of commissions in significant premium increases in a letter to FCA chief executive Nikhil Rathi.
“I was, in all candour, outraged by your findings,” he added.
”You have found that broker remuneration has risen by nearly 40% in the last three years, with £80m of commissions going to other parties – and that brokers are unable to provide any evidence to demonstrate that this represents fair value.
“Despite this, they are happy to load these unwarranted and opaque costs on innocent leaseholders.
”We must continue to shine a light on these unfair practices and to improve the operation of this market.
“Leaseholders are being badly let down. This must not continue.”
Immediate action
This came as the FCA proposed a slew of new rules intended to better protect leaseholders in the multi-occupancy leasehold buildings insurance market.
Read: Briefing – FCA must accelerate its authorisation process for new brokers
Read: FCA appoints new enforcement directors as it looks to become ‘more assertive’
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The new proposals, also announced last week (21 April 2023), would define leaseholders in these buildings as customers of the buildings insurance and bar firms from recommending a policy to a property managing agent or freeholder based on commission values.
Gove felt the FCA should take “immediate enforcement action” against those brokers and managing agents that “cannot demonstrate their commissions represent fair value, where they are regulated”.
”Your report strengthens my resolve to ban property managing agents, landlords and freeholders taking commissions on buildings insurance and replace with transparent fees,” Gove added.
He also wanted insurers’ pricing to reflect a reduction in risk, highlighting Home Office data for reference.
“Home Office data shows reductions in both fire incidence and severity over recent years,” Gove said.
“In recent years, our built environment has become demonstrably safer than that reflected in historic actuarial data.
“We have removed dangerous material from countless buildings, fixed internal defects, created new regulators that will ensure buildings are safer and given leaseholders the power to hold relevant parties to account.
“In this context, I expect insurers’ pricing to reflect that reduction in risk.”
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