The Financial Conduct Authority’s 2020 report on insurance for multi-occupancy buildings found that commission was often at least 30% on a transaction, and it found one case where it was over 60%, Sir Stephen Timms, Labour MP for East Ham told the Commons.
In the debate on the Leasehold and Freehold Reform Bill on Monday night he said: “The FCA was worried that insurance commissions lacked transparency and it feared the conflict of interest that stemmed from brokers regularly sharing half their commission with the freeholder or managing agent. Replacing commission with transparent handling fees, as clauses 31 and 32 envisage, should certainly help.”
The FCA has argued that “the intervention most likely to reduce prices for the minority of multi-occupancy buildings with the most substantial price increases would be cross-industry risk pooling”.
Michael Gove was to be meeting representatives of the Association of British Insurers.
“The ABI initiative on this issue appears, up to now, to have stalled. The FCA recommended that the ABI should work with it and with the Government to introduce a risk pooling scheme in 2022. The scheme was expected to come forward last summer, but we are still waiting. I am hoping that, as a result of the meeting this week that the Secretary of State has told us about, things will get moving.
I checked with the FCA last week about this. It said that the ABI plan is “credible and capable of delivering savings to those worst affected buildings”,
“But it went on to add that the plan is delayed with “no firm launch date” because the ABI is struggling to secure “the reinsurance capacity required”. That seems to be the obstacle. I very much hope that the Secretary of State can find a way to push this forward at his meeting. The ABI urged the Government to increase capacity by backing catastrophic losses in the scheme. It did that most recently in June. Can the Minister tell us whether that appeal has been considered by the Department and whether that might be taken forward at the meeting with the Secretary of State later this week? When does he think risk pooling will commence?
“On remediation, there is a power imbalance between leaseholders and freeholders. That has been highlighted to me by Barrier Point residents. The Bill does not really address that. Section 72 of the Building Safety Act 2022 makes a right-to-manage company the “accountable person” for a high-risk multi-occupancy building, making the directors criminally liable if negligence can be proved. The same Act, however, requires only that freeholders “co-operate” with accountable persons, without any enforcement mechanism in place at all. The freeholder at Barrier Point has held up remediation works for several months and is refusing to sign off on them. The directors of the right-to-manage company desperately want to fulfil their legal obligations but they are left liable because of the refusal of the freeholder to say okay, and there is no comparable liability on the freeholder. That seems wrong, and I wonder whether that imbalance can be addressed in the course of the Bill’s passage through the House.”