Secretary of State Michael Gove responds to the FCA’s report about the buildings insurance market for multiple-occupancy residential buildings

The Department for Levelling Up, Housing and Communities (DLUHC) has published a further letter to the FCA from the Secretary of State, Michael Gove, setting out his response to the FCA’s September 2022 report about the multiple-occupancy residential buildings insurance market.

The letter acknowledges the FCA’s report and thanks the FCA for its work to date, but Gove has:

  • requested that the FCA presents an implementation plan for reforms by summer 2023; and
  • set out his understanding that the FCA will publish a review into brokers charging the highest commissions by March 2023, following its work to assess unusually high broker commissions.

The letter acknowledges that the government also needs to act and highlights the practice of insurance firms sharing commissions and other payments with property managing agents and freeholders (such payments in some cases making up at least 30% of the total premiums paid by leaseholders for their buildings insurance).  Gove also comments on the lack of transparency and access to relevant information faced by leaseholders, alongside material concerns around the potential for hidden insurance charges which has caused considerable distress to leaseholders.

Gove has said that he will take action:

  • to ban managing agents, landlords and freeholders from taking commissions and other payments when they take out buildings insurance, replacing such payments with more transparent fees;
  • to press insurance firms, managing agents, landlords and freeholders to change their practices as a matter of priority;
  • to arm leaseholders with more information to enable them to better scrutinise their insurance costs; and
  • to ensure that leaseholders are not subject to unjustified legal costs and that they can claim their legal costs back from their landlord.

Gove has stated that these steps will ensure leaseholder insurance costs are fairer, more transparent and will rebalance the legal costs regime to give leaseholders greater confidence to challenge their costs, supporting fair value for the leaseholder.

This development, perhaps not unexpected, is likely to significantly disrupt the multi-occupancy residential buildings insurance marketplace, and will very likely alter the landscape of property managing agent remuneration.  Any insurance firms operating in this marketplace, be they insurers or distributors, should start to review how they deal with the property managing sector.

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