The Financial Conduct Authority (FCA) has today set out a range of recommendations and other potential remedies designed to give leaseholders greater protections from high prices and ensure the buildings insurance market operates better for leaseholders.
Since the Grenfell tragedy leaseholders have been faced with substantially increased costs of insurance.
In light of this, the FCA was asked to carry out a review into the market for multiple-occupancy residential buildings insurance and explore ways to provide better value cover for leaseholders.
Sheldon Mills, Executive Director of Consumers and Competition, said:
'Since the Grenfell tragedy, hundreds of thousands of leaseholders have had to endure the difficulties of living in buildings with known fire safety issues and these problems have been made worse by increases in the cost of their insurance.
'We will consult on measures to improve transparency for leaseholders about the price of their insurance and how leaseholders can be given greater protection. We expect the insurance industry to work quickly with us and government to develop solutions to this issue, including developing pooling arrangements and reducing commission, that will make affordable insurance cover more widely available.'
The review found there has been a reduction in the supply of insurance for multi-occupancy residential buildings between 2016 and 2021, with some insurers leaving the market and a reduced appetite to take on new business among others. This appears to be the result of the falling profitability of this line of business.
Data from industry from 2016 to 2021 suggest that the average price of premiums for such buildings has more than doubled over this period (a 125% increase from £6,800 to £15,300).
The package of potential remedies suggested by the FCA seeks to give leaseholders greater protections and improved information about their insurance costs, as well as improve the affordability and availability of insurance.
The package of recommendations and other potential remedies includes:
- creating a cross industry pool to limit the risk to individual insurers posed by certain buildings affected by flammable cladding or other material fire safety risks, aimed at reducing the price of insurance for these buildings;
- increasing the amount and transparency of information available to leaseholders on the pricing of the insurance they are paying for;
- making it easier for leaseholders to challenge high insurance costs passed on to them; and
- making leaseholders ‘customers’ of buildings insurance.
The FCA will provide an update on progress towards potential remedies in six months.
This review of the market for multi-occupancy buildings insurance was commissioned by the former Secretary of State for Levelling Up, Housing and Communities on 28 January 2022.
This report into the cost of buildings insurance for leaseholders is part of the FCA’s work to ensure consumers are protected and markets function effectively.
The FCA is committed to being a more innovative, assertive and adaptive regulator and to meet its growing remit. The FCA launched an ambitious three year-strategy in April, to improve outcomes for consumers and in markets throughout the UK.