FCA confirms Leasehold Buildings Insurance reforms following report on Building Safety Impact

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The FCA has confirmed new measures to support leaseholders in the multi-occupancy buildings insurance market.

The Financial Conduct Authority (FCA) has today (29th September) issued a press release confirming leasehold buildings insurance reforms

The FCA’s action follows its review of the multi-occupancy buildings insurance market, which found that leasehold buildings insurance premiums had risen significantly since the Grenfell tragedy and building safety crisis, with leaseholders facing substantially higher costs and poor value, althoug unfhortunately, the evidence gathered wasn’t sufficient to assess whether the relatively recent increase in premium rates is fair and appropriate for the risks being underwritten, due to the complexity of underwriting and risk models within the residential property insurance market

From 31st December 2023, insurance firms will be forced to act in leaseholders’ best interests, treat leaseholders as customers when designing products and will be banned from recommending an insurance policy based on commission or remuneration levels, announced in a statement published this morning. 

The FCA’s action follows its review of the multi-occupancy buildings insurance market and its aims to ensure better outcomes for leaseholders in the multi-occupancy building insurance market, and other policy stakeholders in a similar position to leaseholders. The new rules will do this by: 

• Increasing transparency for leaseholders. This will make it easier for them to identify and challenge poor practices and incentivising firms to deliver better outcomes. 

• Requiring firms to ensure their products are consistent with the needs and interests of leaseholders and other policy stakeholders, are priced in a way that provides fair value and that remuneration practices do not lead to poor outcomes.

Insurers will also be required to ensure that their insurance policies provide fair value to leaseholders and provide important information about their policy and its pricing, including the detail of any commission paid for leaseholders.

Although the FCA is pushing ahead with the rules and guidance broadly as they were in the consultation paper, it has made some amendments to them. These amendments are:

 • Clarifying the ‘leaseholder’ definition to set out more clearly that it covers residential leaseholders. This means that the disclosure rules only apply to multioccupancy building insurance policies for residential leaseholders. Firms will not need to provide disclosures intended for commercial leaseholders.

 • Including an additional part to the definition of ‘policy stakeholder’ so that it only captures natural persons who are acting outside of their trade or profession. This is to clarify that commercial entities (including commercial leaseholders) will not be considered policy stakeholders. 

• Introducing guidance to make clear that the required remuneration disclosure for leaseholders must include all forms of remuneration or financial incentive, including contingent remuneration (payment that depends on a policy being taken out) and other remuneration earned post-contract. 

• Making provision in the disclosure rules to allow firms to estimate the premium breakdown at building or dwelling level if they are unable to identify an exact figure.

Following a review into broker remuneration practices, the FCA expects 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 FCA rules on fair value.

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

Read the full policy statement, which includes summary feedback and responses from its recent consultation here