Dear CEO | Release Date: 28th January 2022
To read a longer summary of this Dear CEO letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) has expressed concerns regarding rising insurance costs for multi-occupancy buildings like apartment blocks, noting the significant financial burden on leaseholders. The FCA’s letter emphasises the necessity for insurance firms to ensure that their pricing models and the resultant premiums reflect the actual risk adequately and fairly, without unnecessary inflation through distribution costs.
The FCA highlights that while risk assessment, such as the presence of unsafe cladding, plays a role in determining premiums, other factors like distribution costs also significantly impact pricing. Firms are urged to ensure their products offer fair value, which is crucial as leaseholders typically cannot shop around due to the nature of their agreements, where costs are passed through service charges by freeholders.
Insurance firms and intermediaries, including brokers and property managers, are reminded of their duty to treat customers fairly, ensuring that commissions and fees are justified by the services provided and do not adversely affect the product’s value. The FCA stresses that remuneration should not influence decisions against customers’ best interests.
To enforce these principles, the FCA intends to collect data to scrutinise pricing practices for insurance in multi-occupancy buildings, focusing on the impact of non-risk factors like commissions on premium costs. This action aims to identify the need for further regulatory interventions to ensure fairness in the insurance market.
Key takeaway:
Insurance firms must review their pricing strategies to ensure they align with fair value requirements and address any disproportionate impact of distribution costs on premiums. The FCA will actively monitor and, if necessary, intervene to protect leaseholders from unfair financial burdens.