The proposed rule changes would require insurance firms to act in leaseholders’ best interests, and bar firms from recommending a policy based on commission or remuneration levels and would see insurers and brokers need to provide more information about insurance policies to leaseholders, including detail of any commission paid.
A review by The FCA also found average per-policy insurance broker commission rose by 46% over the review period. Firms in the sample paid over £80m of commission away to other parties, usually the freeholder or the property managing agent.
Significant shortcomings by some brokers in applying fair value rules to their remuneration practices, and the impact on those ultimately paying the costs of multi-occupancy buildings insurance, were also identified.
The FCA is seeking comments by the 9th of June after which it will publish a policy statement (Q3 2023) with its response to the consultation.
Sheldon Mills, Executive Director of Consumers and Competition, said:
"We want to give leaseholders more rights and the information they need to exercise them. Importantly, under our proposals, those selling multi-occupancy insurance will have to act in the leaseholders’ best interests.
"Our review revealed large commissions paid by some brokers to freeholders and third parties, like managing agents, with little evidence of any value added to justify these payments We are taking action against these practices and we won’t hesitate to take further action if brokers don’t comply with our rules."
