UK levelling-up secretary Simon Clarke has criticised insurers’ treatment of some leaseholders in shared buildings as “alarming, if not abusive” and demanded they start pooling risks to reverse a sudden doubling of premiums.
Clarke also accused the insurance sector of failing to take sufficiently seriously the problems posed by the precipitous cost increases.
He was speaking on Wednesday after publication of a report by the Financial Conduct Authority into insurers’ behaviour following the 2017 Grenfell Tower fire, which killed 72 people and exposed the dangerous state of many British high-rise buildings.
While the Association of British Insurers trade body supported the FCA’s recommendations on a risk-sharing scheme, it gave no timetable for the implementation of the proposals.
Michael Gove, former levelling-up secretary, asked the FCA in January to produce a report, in combination with the Competition and Markets Authority, on the functioning of the insurance market for multi-occupancy buildings in light of what he called “crippling” cost increases.
The insurance cost rises are among a series of problems that have afflicted owners of properties in high-rise buildings since the Grenfell fire, which exposed the risks posed by types of cladding installed on the exteriors of thousands of buildings.
The report found annual premiums on a typical building rose from £6,800 to £15,300 between 2016 and 2021.
The FCA said it would consult on reforms to reverse the price rises. Its main recommendation was that the industry create a “cross-industry pool” to reduce the risks posed to insurers by flammable cladding or “other material fire-safety risks”.
The watchdog also proposed measures to give leaseholders — who hold part of a property ultimately owned by a freeholder — greater control over their insurance costs.
It recommended that leaseholders be given more information about the pricing of their insurance and enhanced powers to challenge freeholders passing on increased insurance costs.
Leaseholders should in future become direct customers of insurers, it added. Currently, freeholders are typically the building insurer’s sole named customer.
Clarke said that leaseholders must be protected. “I welcome the light the FCA’s report has shone on some alarming, if not abusive, industry practices,” he said.
The report found that insurance brokers often gave a proportion of their commission from insurers to the agents that managed properties. Clarke called for prompt action to end that practice.
“Managing agents taking kickbacks from brokers is wrong and must urgently be stopped,” he said, noting “deep concerns” that the industry was not taking the issue sufficiently seriously.
In a letter to the Association of British Insurers sent on Wednesday, Clarke said he was “seeking assurance” that the group would set up the pool recommended by the FCA and called on it to outline steps towards implementation by the end of September.
However, James Dalton, ABI director of general insurance policy, gave no firm commitment on the timing of any action.
“We support the FCA’s recommendations on a risk-sharing scheme and have been actively discussing various options with industry and government,” he said. “Our work in this area will continue at pace.”