Possibly one of the most controversial subjects in flats insurance is the issue of commission and to whom it is payable.
It is probably no secret that insurance companies pay a proportion of the insurance premium to some insurance brokers for arranging and administering the insurance policy. In turn it is commonplace for insurance brokers to pass some of this commission either to the managing agents or the freeholder and it is this practice that can sometimes be considered as controversial.
It may not be unreasonable for managing agents to earn commission, given that they can spend up to 25% of their time with insurance related matters. Put quite simply, if they are not remunerated in the form of commission then they would need to incorporate the cost of this work in their fee structure. The more controversial issue, however, is to whom they have to disclose commission and when.
Currently a Property Managing Agent is obliged, under the Financial Conduct Authority rules (assuming they are directly regulated), to disclose their commission to the policyholder upon request, as is the insurance broker placing the business on their behalf.
Additionally, some managing agents, who are members of the Royal Institute of Chartered Surveyors, are authorised to transact insurance using an exemption and need to obtain their clients’ permission in writing to draw commission.
Most flat owners are unlikely to object to commission being paid, as long as the recipient is providing a service for which the level of remuneration is appropriate. When starting a new arrangement a Property Managing Agent or renewing your arrangement, always ask:
- Whether the Property Managing Agent is FCA authorised – this arrangement provides you with the most flexibility as your agent will be able to check with a range of insurance providers to ensure you obtain the most competitive premium and cover
- Whether the Property Managing Agent takes commission for arranging or introducing insurance or if the cost for their work on insurance is incorporated in their management fees. If they take commission, ask what percentage.
