UK financial watchdog intervenes to cut building insurance costs
Business
The watchdog will publish final rules in the third quarter, with a three-month implementation period
LONDON (Reuters) - Britain's financial watchdog proposed changes on Friday that would cut the cost of insuring residential apartment blocks, saying intervention was needed to prevent the wrongful use of commission.
The proposals follow a review after the fire in Grenfell Tower, London, in 2017 when 72 people died, leading to big hikes in building insurance.
The Financial Conduct Authority proposes that insurers must act in the best interest of leaseholders, and that the brokers who sell their policies should be banned from recommending a policy based on how much commission they receive.
The FCA said it also expected brokers to immediately stop passing on part of their commission to the managing agent or freeholder of the building being covered if it did not comply with the watchdog's fair value rule.
"We are taking action against these practices and we won’t hesitate to take further action if brokers don't comply with our rules," Sheldon Mills, FCA executive director of consumers and competition, said in a statement.
The FCA published a consultation paper on its proposals alongside a review of 16 insurance brokers' sales to blocks of apartments between January 2019 and September 2022.
Average per policy insurance broker commission rose by 46% over the period, with firms passing on more than 80 million pounds ($99.57 million) of their commission to the managing agents or freeholders, a cost ultimately borne by leaseholders, the FCA said.
"Brokers were often unable to articulate what insurance related services or benefits of value were provided by the parties sharing commission," the watchdog said.
Leaseholders would have transparency on insurance costs and ability to challenge poor value under the FCA proposals.
"All these issues have caused considerable distress for many leaseholders, including on their mental health and wellbeing," the FCA said.
