Brokers face buildings insurance commission disclosure as competition watchdog cites 'excessive charges'

Brokers, insurers and residential property owners could be forced to disclose their buildings insurance commissions after the Competition Markets Authority found evidence that leaseholders could be overpaying for cover.

The CMA said in a report released today that freeholders or their agents “may have an incentive to choose an insurance company which offers the highest levels of commissions rather than the best value for money to leaseholders”.

This means the cost to leaseholders could be “unnecessarily high”, the regulator said.

Typically freeholders or their property managing agents arrange buildings insurance cover for leaseholders. Leaseholders are then sent an invoice for their contribution, but frequently are not told how much of the payment is commission for the broker or property owner. Nor do they have a say on which insurer or broker is used.

The CMA said it was concerned that some leaseholders suffered “from a lack of control” over several aspects of property management, including unnecessary charging and insufficient transparency.

The competitions regulator is also investigating the relationship between property managers and insurance brokers, and whether the fees and commission they receive “are proportionate to the work done”.

The report also revealed that the CMA has heard allegations of insurance brokers, freeholders and property managers receiving payments that represent poor value for money to leaseholders.

As a result, the CMA has proposed full disclosure by the freeholder or property management company that places the insurance so that leaseholders can see that:

• the market has been tested;
• the freeholder/property manager has the best deal;
• details of what is covered are included;
• whether any commissions/fees or other incentives have been taken (and if so how much); and
• whether the freeholder/property manager has any links to any of the other parties involved (including insurers and brokers) and if so similarly disclosing any commissions/fees or other incentives.

It has asked for views on whether disclosure should be recommended, and how requirements to disclose could be best implemented and enforced, by 19 September.

Rachel Merelie, senior director of delivery, said: ‘Whilst the market works well for some leaseholders, our emerging findings suggest that improvements may be needed in a number of areas. Given the broad range of issues we are considering, we have decided to seek views at this stage on a range of possible remedies to the problems we have identified. This will help us to develop recommendations that are both effective and proportionate.”