Briefing: FCA surprised at high commission levels for multi-occupancy buildings insurance

By acting editor Yiannis Kotoulas 

Back in February this year, Insurance Times reported on the issue of secret commissions being paid to property managing agents and freeholders by insurance brokers working in the multi-occupancy buildings insurance market, noting that it appeared the powers that be were calling time on the practice. 

At the time, secretary of state for levelling up, housing and communities Michael Gove indicated that he would move to ban this practice and “end unusually high broker commissions” in this area. 

This week (12 July 2023), the government’s move to end this practice began in earnest as a sub-committee of the House of Commons Treasury Select Committee took evidence to investigate multi-occupancy buildings insurance and commissions – those giving evidence to the committee included Johnny Timpson of the Financial Services Consumer Panel, Anthony Essien of the Leasehold Advisory Service and Sheldon Mills and Matt Brewis of the FCA. 

Both Mills, the FCA’s executive director for consumers and competition, and Brewis, the FCA’s director of general insurance, told the committee that they had been personally surprised at the level of some of the largest commissions being paid, with Mills adding that brokers must assess the value of the services they provide in the value-chain to ensure that leaseholders were being provided with fair value. 

Far enough?

However, despite assertions from the regulator that it has a handle on this issue, with plans to increase transparency for leaseholders and ban firms from recommending a policy to a property managing agent or freeholder based on commission values, leasehold groups told Insurance Times that the evidence session was “infuriating to watch”. 

Harry Scoffin, cofounder of leaseholder campaign group Commonhold Now, said: ”The FCA’s package of reforms to multi-occupancy buildings insurance is timid and fails to provide an outright ban on insurers and brokers paying out commissions and fees to freeholders and managing agents.

“Leaseholders do not want to know by how much they are being ripped off, they just don’t want to be ripped off in the first place.” 

Now that the government is paying attention to this area of the insurance sector, we can all expect that various investigations and committees will rumble on for some time.

However, that is no reason for brokers and insurers to remain complicit in a practice that leads to the overcharging of leaseholders via unfairly inflated service fees.

The vast majority of actors operating in the buildings insurance market are surely acting above board with consideration of fair value, as the incoming Consumer Duty requires – but those who aren’t have brought down the scrutiny of government on the sector. Now that they’re interested, who’s to say where the government intervention will end? 

It is far better for everyone within the insurance industry for firms to effectively self-regulate, thus remaining able to evidence good practice to the government and ward off undue interest.

However, it now seems the ship has well and truly sailed on that one.