Clarke Williams and other prominent insurance brokers have taken decisive steps towards addressing concerns surrounding buildings insurance transparency
The government, recognising the insurance challenges faced by leaseholders in buildings with fire safety risks, has taken proactive steps to address soaring buildings insurance premiums.
These costs, often passed on through service charges, prompted collaboration with regulatory bodies, insurers, and insurance brokers to find solutions.
A 125% average increase in buildings insurance premiums across the leasehold sector
The Financial Conduct Authority (FCA) revealed a significant increase in building insurance premiums across the leasehold sector from 2016 to 2021, reaching a staggering 187% for buildings with fire safety issues.
Broker commissions, up by 46% over three years, raised concerns, particularly the £80m passed to third parties without clear justification.
In response, the FCA introduced financial regulations to enhance value and access for leaseholders.
The commitment will enhance transparency in buildings insurance
The government, supportive of these changes, urged insurance brokers to commit to more responsible behaviour regarding commissions, leading to a voluntary pledge by prominent brokers, including Clarke Williams Ltd.
Clarke Williams has proudly joined this government-backed pledge. This commitment marks a significant effort to enhance transparency, reduce costs, and improve disclosure for buildings insurance, especially in residential leaseholds facing fire safety issues.
The pledge will deliver best practices in the treatment of leaseholders
The pledge specifically applies to buildings over four storeys or 11 meters in height with identified fire safety issues. The core commitments include:
1. Ending commission sharing
Brokers pledge to cease the practice of sharing commissions with parties involved in placing or arranging buildings insurance, such as property managing agents, landlords, and freeholders.
Under this pledge, insurance brokers commit to cease sharing commissions received from insurers with parties placing or arranging insurance, including property managing agents, landlords, and freeholders.
This shift eliminates the incentive for these parties to prioritise higher commissions over the best interests of leaseholders.
Property managing agents, landlords, and freeholders are encouraged to opt for the most beneficial building insurance for the leaseholders and the building itself, fostering fair and transparent charges in the service charge to recover insurance-related costs.
2. Commission cap
A cap of no more than 15% of the total premium is committed to retained commission, applicable to buildings that have or have not yet been remediated.
This cap ensures that no broker subscribing to the pledge will take more than 15%, a significant reduction compared to the previously identified 60%.
The decrease in the commission retained by brokers will directly lower the total insurance cost for leaseholders in their service charge.
Additionally, this 15% may include a work transfer fee if brokerage work is undertaken by another party.
3. Transparency
Brokers commit to disclosing commissions to leaseholders in accordance with FCA regulations and promoting transparency on leaseholder fees through collaboration with third parties.
Brokers who have joined the pledge
Clarke Williams is excited to be one of the 12 founding members who have joined the voluntary pledge.
Notable names, including Lockton LLP, Willis Limited, Brownhill Insurance Group Ltd, among others, have also signed this landmark commitment.
Each broker’s independent decision to embrace the pledge underscores their dedication to supporting leaseholders and promoting responsible practices within the UK insurance market.
Expectations for leaseholders
The pledge signifies a benchmark in insurance broking best practices. Reducing commission charges is expected to positively impact building insurance premiums for leaseholders.
Freeholders and property managing agents are encouraged to consider brokers who have subscribed to the pledge, ensuring transparency and fair value representation.
Leaseholders are advised to inquire about the broker used for their multi-occupancy building and understand the commissions involved in the insurance value chain.
The FCA’s regulations change, effective 31 December 2023, empowers leaseholders to request comprehensive information related to their policy from their broker.
Recommendations and reporting
The pledge encourages adherence to the RICS service charge code, urging transparency in sharing information about insurance costs with leaseholders.
This government-backed pledge, driven by collaboration with key industry players, including Clarke Williams Ltd, is a significant stride towards mitigating the financial burden on leaseholders.
By enhancing transparency, reducing excessive commissions, and empowering leaseholders with information, the pledge aims to create a fair and accountable insurance landscape for multi-occupancy buildings facing fire safety challenges.
To find out further information on the pledge, click here.
For those seeking assistance with quotations for their property insurance, Clarke Williams is here to help.
Contact us to navigate your insurance needs with expertise and dedication.
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