Dear Secretary of State | Release Date: 21st April 2023
To read a longer summary of this Dear Secretary of State letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) has updated the Secretary of State on its actions regarding the multi-occupancy buildings insurance market, following a report published in September 2022 that highlighted significant issues contributing to the high insurance costs for residential leaseholders. The FCA’s report led to a series of proposed remedies and recommendations aimed at both the insurance industry and the government.
Key Actions Taken:
Remedies by the FCA:
Consultations launched for improved leaseholder information disclosure and alterations in regulatory requirements to ensure firms consider leaseholders’ interests.
Review of insurance broker remuneration to tackle excessive commissions and ensure fair value to leaseholders.
Proposed regulatory changes to enhance disclosure requirements and prohibit practices conflicting with leaseholders’ interests.
Industry Developments:
The Association of British Insurers (ABI) is developing a reinsurance scheme targeted for launch in Summer 2023 to address risks associated with cladding and fire safety issues.
The ABI and the British Insurance Brokers’ Association (BIBA) introduced a voluntary code to standardise the collection of core risk data for buildings, which aims to improve market transparency and consistency.
Government Recommendations:
The FCA suggested that the government could mandate freeholders and property managing agents to disclose insurance policy details to leaseholders.
Legislation could target unregulated property managers and freeholders regarding their remuneration from insurance dealings.
Expected Actions for Stakeholders:
The FCA expects immediate cessation of unjustified commission payments to third parties by brokers and is proposing amendments to ensure that insurance products are designed with leaseholders’ needs in mind. The consultation on these changes will remain open until 9 June 2023, with final rules expected by Autumn 2023.
The letter underscores a collaborative approach between the FCA, insurance industry bodies, and the government to address systemic issues in the buildings insurance market, aiming to enhance transparency, fairness, and regulatory compliance to protect leaseholders from undue financial burdens.