I have had a watching brief on flats insurance for some years now as am an adviser to insurance companies and brokers re their compliance arrangements (FCA rules).
We all know what’s been happening – leaseholders have been stitched up for years by freeholders (FH), landlords (LL) and property managing agents (PMAs) who have demanded a cut from the insurances they arrange via brokers as a cost to play. Some brokers and insurers have then built in rather large and unnecessary commission payments to fund the clients’ support of them. The result? Leaseholders have been paying well over the odds for a long time and yet, despite paying for it, they’ve had no choice in who the cover is placed with, what it covers and then, most importantly, what it costs (and insurance costs have gone up 92% in the last five years according to the BBC).
Lots of you became incensed and demanded action via MPs and that led to the Financial Conduct Authority commencing some much needed work and their various reports have not been a shock. They concluded that no one was acting in the interests of LHs and that premiums and commissions were excessive thus allowing pay-aways to people that should be helping you (and in the relevant survey period, brokers had cut some £80m and did not know what benefit, if any, was brought to LHs). Don’t forget, the commission is included in the premium so you are paying for all of this. If your PMA has already been charging additional amounts for “insurance services”, then you are paying for this twice over.
We had some great questions at the FCA’s public meeting last year:
- Why did you let regulated insurers get away with causing harm and ripping off innocent leaseholders for years?
- The FCA’s reforms may provide transparency but will only tell us how much we’re being ripped off and will still give us no choice as the actual consumer paying for insurance. What more needs to happen to ensure the harm will be resolved fully?
- Insurance for Leasehold flats: where conduct in the past has been to maximise unjustified revenue from third parties will the FCA advocate compensation by those parties to leaseholders?
Roll forward 30 September 2023the date on which the FCA published new rules for MOBI – Multi-Occupancy Buildings Insurance. They give LHs a new status – that of a “policy stakeholder” so that insurance brokers and companies can no longer hide behind “yes we know you pay for it (and we’ve made it even more expensive to accommodate a lot of people having their scoff at your expense) but we can’t tell you anything about the insurances that protect you…”
Yes, as from 31 December 2023 you are entitled to a lot of information that the LL/FH/PMA should let you have. Things like sum insured, what’s covered and what’s not covered, excesses, how placed, what shopping around took place, the premium, what the commissions are and what’s been shared, if anything. You are entitled to this or be shown where to get it from. The passing of the Leasehold and Freehold Reform Bill will define a “permitted insurance payment” and that will restrict by law what comes out of that bit of the service charge. My guess would be just the insurance premium which has in-built commission. Anything else paid to other parties, such as the PMA, will have to be charged directly to all LHs and will not be coming out of the premium.
We also had a case at the Property Chamber First Tier Tribunal in May (which is where you take issues should you feel you are being charged too much for any aspect of your leasehold property) – this comes by virtue of the Landlord and Tenant Act 1985 (which only costs £100 to bring an action and a further £200 for a hearing). The judges ruled that leaseholders in a block of flats were overcharged by 145% after they had “not been presented with one item of documentary evidence to suggest that the insurance premiums for the building were competitive”.
The tribunal decided E&J Estates (acting for RMB 102 Ltd), which according to its website “manages the freeholds of over 1,600 buildings across the UK”, in respect of flats at Hollins Court Bank in Blackburn, had overcharged the LH bringing the action for four years. As a result, E&J must repay thousands in overcharged insurance and this could easily exceed £50,000 when all 80+ LHs also claim for their over-payment (whether they pay this is a moot point as premiums will have been paid over to the insurer, which was Zurich in this instance).
The total insurance policy costs for the building amounted to about £27,000 a year but the LH bringing the action said that these costs were unreasonable, and the premiums were also inflated and unreasonable (an alternative was found for less than £12,000). The insurance witnesses, to include A J Gallagher (the broker) provided evidence that was “lacking transparency, economical as to disclosures, contradictory and lacking credibility.”
The court concluded that they did not find evidence required to show that the premiums charged were reasonable and not artificially inflated by the connected nature of the various parties (including the arranging of a reinsurance policy to protect the exposure of the insurer). This case showed that the broker provided advice that helped rip off LHs and is the case to use in the event that you think you too have been ripped off where you are not happy with the shopping around that the broker has done for placing/renewing the block.
So, as from the start of the year, you are entitled to new documents that will show you what has been done. These will be made available to the FH/LL/PMA. They should then let LHs have access to these documents and if you don’t get them, then go direct to the broker or insurer assuming you know who they are. The broker has to explain why they are recommending that particular policy and what they have done to shop around. If you are not happy, demand answers and threaten them with a Property Chamber Tribunal. Things are meant to be looking better but even so, if commission payments to brokers have fallen, then why is it that overall premiums have not? Please ensure you look at what you are sent and ask all the questions you are entitled to ask!
About the Author
Branko Bjelobaba FCII is a prolific, accomplished, well-read and respected insurance industry commentator calling out the good and bad, a regular judge for insurance awards and, in his spare time, a passionate advocate for social mobility.
