UK financial watchdog has proposed some reforms that would lead to reducing the insurance cost for multi-occupancy leasehold buildings.
The proposals come after a review was carried out following a fire break out in Grenfell Tower, London, in 2017, reported Reuters.
The fire had killed 72, and this incident had subsequently led to major hikes in building insurance.
As per the proposals of the Financial Conduct Authority (FCA), insurers are required to act in the best interest of leaseholders.
Brokers selling insurance policies are required to stop recommending a policy based on the commission they get.
The FCA expects brokers to stop paying commission on an immediate basis to third parties including property managing agent or freeholder of the building insured if they do not have appropriate justification and proof for doing as per the rules on fair value.
In a statement, FCA executive director of consumers and competition Sheldon Mills said: “We are taking action against these practices, and we won’t hesitate to take further action if brokers don’t comply with our rules.”
The watchdog published a consultation paper on its proposals besides reviewed renumeration registered by 16 insurance brokers between January 2019 and September 2022.
Over the review period, average broker commission per policy surged by 46%, with companies passing on over $99.57m of commission to the managing agents or freeholders and this cost eventually falls on leaseholders, pointed out the FCA.
The watchdog said: “Brokers were often unable to articulate what insurance-related services or benefits of value were provided by the parties sharing commission.”
As per the FCA proposals, leaseholders will be aware of the insurance costs and can challenge poor value.
FCA said: “All these issues have caused considerable distress for many leaseholders, including their mental health and wellbeing.”
The final rules will be published by the watchdog in the third quarter of this year, with a three-month implementation period.