Facility to improve insurance availability for buildings with fire risk gets key capacity

The ABI has revealed that it has secured the reinsurance support needed to launch the fire safety reinsurance facility.

The facility is set to go live from 1 April 2024 and will help improve the availability of insurance for certain buildings with combustible cladding and other fire safety issues.

And the ABI hopes that, in turn, this will encourage competition across the market so that more firms will provide cover.

The facility was established by (re)insurance broker McGill and Partners with support from the ABI and Biba, which will ensure brokers are made aware of it.

Mervyn Skeet, ABI director of general insurance, said: “Supporting leaseholders and making insurance more widely available for higher-risk buildings with fire safety issues has been one of the ABI’s top priorities.

“I’m grateful to McGill and Partners and all the firms involved for their help in establishing this commercial intervention and hope it will encourage more insurers to enter the market and offer cover for these buildings.”

Steve McGill CBE, founder and chief executive of McGill and Partners, added: “Insuring cladded, multi-occupancy buildings that pose a fire safety risk has challenged our industry for some time.

“However, this unique facility aims to present a competitive market solution that will address this important issue and I am incredibly proud that McGill and Partners has played such a pivotal role.”

How it works

The facility comes following the Grenfell Tower fire, with Dame Judith Hackitt’s review exposing significant construction and fire-risk issues related to these buildings.

In turn, insurers have had to consider the heightened risk of an entire building being destroyed in the event of a fire and have had to limit the amount of cover they could provide.

As a result, brokers, freeholders and managing agents have had to source insurance cover from multiple firms, meaning that several insurers were involved in covering one building, adding to the cost.

However, through a reinsurance panel led by Swiss Re, the new facility will enable insurers to expand the capacity they have for writing insurance for affected buildings and take on new business.

The insurers currently participating within the facility include Allianz, Aviva, Axa, RSA and Zurich.

They will now enter higher-risk buildings they currently insure, and which are awaiting remediation works, into the facility at the point of their annual renewal.

Mark Dunham, commercial lines chief underwriting officer at Aviva, said the insurer “welcomed the additional capacity available in the market”.

“Aviva understands the difficulties faced by residents living in buildings with combustible cladding or other fire safety risks,” he added.

“In April 2021, we became the first major insurer to provide fairly priced insurance for existing and new customers living in buildings with combustible cladding.”

Government help

Buildings insurance premiums will continue to be based on a variety of risk factors, such as the type and age of the building, previous claims history and other property risks such as storm, flooding or escape of water.

External factors such as construction costs and supply shortages will also have an impact.

However, to further help remove financial strains on leaseholders, the ABI urged the government to provide financial support to the facility and cut Insurance Premium Tax (IPT), which would provide a 12% reduction in costs.

“The industry has been determined in its efforts to support leaseholders, but it cannot solve the issue alone,” Skeet said.

“Establishing the facility is a significant step forward, but government intervention and swifter remediation is still the only long-term solution.

“We strongly encourage government to consider how it can support the facility to boost confidence in the market or remove IPT for affected buildings, to offer more immediate relief to leaseholders.”