Five UK insurance brokerage firms have pledged to stop sharing building insurance commissions with landlords and to curb their own rates, a move the government claims will drastically decrease prices for thousands of leaseholders in buildings with fire safety risks.
Leaseholders in apartment complexes contribute to insurance policies that cover the buildings and their contents, but they have little say over which insurers are chosen or the intermediary expenses paid to brokers, which are frequently divided with the landlord, freeholder, or managing agent.
Willis Towers Watson, Lockton, Brown & Brown, Bridge, and PIB have agreed with the government to stop sharing their commissions with these third parties on buildings over 11 metres in height with known fire-safety issues, and to cap the proportion of premiums that they take at 15%.
Lee Rowley, minister for building safety, praised the brokers’ decision to “step up and demonstrate their willingness to do more to bring premiums down.”
“These brokers are to be congratulated on their decision; we now need to see further action from others in the broader insurance and broker industry to accompany it,” he said.
The move comes after the UK financial regulator said intermediary fees paid by leaseholders as part of their buildings insurance, which reach as high as 62 per cent of the premiums, to be “disproportionate” in a recent report.
Campaigners fighting for insurance transparency in court have identified middleman fees shared with third parties as a major component of exorbitant insurance costs, particularly for individuals paying extra for coverage owing to fire safety concerns. In December, a London tribunal lambasted the commission payments sought from residents of one block of apartments, ruling that they had been overcharged by £1.6 million.
According to government insiders, the government committed in January to prohibit managing agents, landlords, and freeholders from receiving commissions on building insurance, and the policy is expected to be included in a leasehold reform law to be announced in the King’s Speech on November 7. Officials hope that the prohibition will be in effect by the general election next year.
The law will abolish leaseholds on all new-build houses, fulfilling a long-standing Conservative vow, and will include a variety of other measures to assist leaseholders, who are frequently liable for additional payments. Existing ground rents will be capped at a “peppercorn” rate.
Furthermore, the measure will allow leases to be extended from 90 to 990 years and eliminate the condition that leaseholders have stayed at the property for two years before requesting one, government aides revealed on Sunday.
According to The Sunday Times, the law will also give leaseholders the “right to manage” their property by hiring and firing property managers.
Meanwhile, the regulator has stated that insurance brokers should stop paying commissions to third parties “where appropriate justification and evidence for doing so in accordance with our fair value rules.”
The British Insurance Brokers’ Association’s chief executive, Graeme Trudgill, said the trade body has been working closely with the government and its members on the pledge.
“We will continue to work with relevant members to highlight how important this pledge is in the context of multi-occupancy properties with fire safety issues,” he added.
Firms providing building insurance will be required to behave in the best interests of leaseholders and consider them as customers under broader reforms enacted next year.
Insurers will also be expected to give leaseholders with critical information regarding the insurance and its pricing, including any commissions paid.