Briefing: The FCA is asleep at the wheel on unethical property commissions

What has happened to the FCA? It’s been five years now since the Competition and Markets Authority (CMA) released it’s concerning findings on property insurance and high commissions.

Yet the regulator remains quiet, despite mounting evidence of widespread sharp practices and growing calls to protect, potentially, millions of ordinary people being unfairly charged insurance.

Even within the insurance industry itself, there is widespread concern from those who approach real estate property commissions with the right conduct against competitors who are driven entirely by profit.

Intermediaries, such as brokers and property managers or freeholders, can together take nearly half the premium in commissions. 

Commission disclosure no magic bullet 

The FCA seems to believe that commission disclosure will magically solve the problems. It won’t.

As Insurance Times shows today with its scrutiny of a Gallagher firm’s captive set up, the growing use of captive arrangements makes it harder, not easier, for leaseholders to understand what is going on.

And if a leaseholder does, somehow, find out the commission payments, it’s not easy for them to challenge.

Leaseholders can attempt to bring a case to tribunal, but it is complex and difficult to make an argument, especially with the lack of transparency in the first place.

Leaseholders don’t arrange the insurance, so they would need to scour the market to find comparative prices and prove their premiums are not value for money.

This is all pointed out by the initial good work of the CMA five years ago.

The solution is to attack the problem at its source, through the insurers and brokers who have adopted the wrong culture.

FCA to face mounting pressure

The FCA is talking a good game about attacking the producers – namely the insurers – who frequently wash their hands of responsibility in the distribution chain, but we’ve seen little evidence of action.

This issue, at the very least, deserves its own market study so the FCA can properly assess for itself what is going on.

It would be much better if the FCA were proactive on the issue, rather than eventually being dragged into this by increased pressure from politicians and the media.

Amid the UK’s housing crisis, and hard-pressed people paying higher than ever proportions of their income on rent, tackling abusive insurance practices is an easy win for politicians looking for votes and media keen to highlight poor corporate ethics. 

Sir Peter Bottomley is pushing this issue and campaigners are now feeding stories to the media on a regular basis. 

The FCA must take action to show it is there to help millions of people, many of whom are on low income, who need regulatory protection.

The FCA can’t be naïve enough to believe the insurance industry will sort this out by itself.

Indeed, many insurers and brokers will be quite pleased to see the regulator establish a more even playing field.