A Government pledge signed by five insurance brokers will stop the sharing of commissions with parties who place or arrange buildings insurance for blocks with identified fire safety issues that are over 11 metres (or four storeys).
The pledge also introduces a cap of 15% on the premium that brokers take to compensate for their work in arranging the insurance. A recent Financial Conduct Authority (FCA) report on broker remuneration found that this amount can be as high as 60% of the cost of the premium paid by leaseholders.
Government says the pledge could reduce insurance premiums for thousands of leaseholders in affected buildings.
The brokers that have individually taken the voluntary decision to sign up to the pledge are: Lockton LLP, Bridge Insurance Brokers, Brown & Brown Insurance Brokers (UK) Limited, PIB Group Insurance Brokers / St Giles, and Willis Limited (WTW).
The brokers who have signed up to the pledge have also confirmed their commitment under new FCA rules, from 31 December 2023, to share information about the buildings insurance policy with leaseholders if requested.
Andrew Bulmer, Chief Executive of The Property Institute, said: “The new pledge is another step by Government to improve transparency for leaseholders by capping the fee a broker can take, and requiring brokers to give leaseholders access to the fee information they need. The pledge only applies to a limited number of buildings with safety defects, but the direction of travel for all has already been set by the FCA requiring brokers to ensure fees represent ‘fair value’. It will not come as any surprise to The Property Institute members and the wider sector given the Government’s clear stance, and we should expect more concrete action on commissions in the upcoming King’s Speech next week.
We highlight that an end to the sharing of insurance commissions by these brokers does not mean the banning of remuneration for work done by the managing agents they work with. Property managers do work in placing insurance, collecting premiums and managing claims, and can still be paid for that work. The ARMA Consumer Charter & Standards and RICS Service Charge Code has long required proportional fees for work done, and these can be raised transparently through the service charge in the usual way.
We will keep you informed as we hear more on further reform; look out for our bulletin and reaction to next week’s King’s Speech."
The FCA’s findings have strengthened the Government’s resolve to see a ban on the practice of sharing commissions, as announced by the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, in January 2023. The pledge is another step towards implementing this ban.
These companies will act with immediate effect for new policies and the Government will monitor the adherence of the companies to the pledge whilst assessing its impact. It expects to see the numbers of brokers committing to the pledge increase over the coming weeks.
Read the Government pledge here.
