The Financial Conduct Authority (FCA) has proposed insurance reforms to protect leaseholders from paying extortionate sums for insurance.
Under the new plans, leaseholders will be defined as “customers of buildings insurance” and insurance firms will be obliged to act in the leaseholders’ best interests.
A leaseholder is someone who has bought the right to live in their flat, but not the property itself. The property is owned by the freeholder.
A high number of leaseholders across the UK have complained about a lack of transparency in how freeholders choose insurance policies for their buildings. The FCA reforms aim to tackle this issue.
The FCA identified “significant shortcomings” by a number of insurance brokers in applying “fair value rules” to their compensation. Brokers often pay commissions to third parties, including freeholders, making the final cost of insurance much higher for leaseholders.
The Department for Levelling Up, Housing and Communities wants to ban this type of payment to freeholders, landlords and property managing agents, as it can be detrimental for leaseholders.
The plight of leaseholders has come increasingly under the spotlight in the aftermath of the Grenfell Tower fire, when many leaseholders discovered the value of their flats had plummeted as their buildings were covered in cladding.
An FCA report from last year found that leasehold buildings’ insurance premiums had risen significantly since the Grenfell tragedy.
A review published yesterday also found average per policy insurance broker commission rose by 46 per cent over the review period.