"[The FCA] expect the insurance industry to work quickly with us and the government to develop solutions to this issue, including developing pooling arrangements and reducing commission, that will make affordable insurance cover more widely available."
- Sheldon Mills, executive director of consumers and competition
Last week, Inside Housing reported that residents of 52 Compass Point flats in Wythenshawe, Greater Manchester were allegedly threatened with eviction unless they could pay a £250k insurance bill. This equated to £5,000 per resident, which allegedly had to be paid within 21 days, according to residents.
The invoice allegedly reflects risks caused by fire safety defects in the flat block, including missing fire breaks within the timber-frame structure and unsafe timber balconies. According to Inside Housing, this work is exempt from government funding programmes to remove dangerous cladding.
Consequently, the building’s original insurer, Allianz, allegedly declined to offer a new policy in September 2021. Although a new insurer was found, premiums rose from £12,000 to more than £150,000 to insure the building, reported Inside Housing.
This year, premiums rose again, from £150,000 to £250k – £5,000 per household – and the insurer demanded the full fee upfront instead of offering the option to pay in installments.
In a recent press release, the Financial Conduct Authority (FCA) has acknowledged that, since the Grenfell tragedy, leaseholders have been faced with substantially increased costs of insurance.
Therefore, as part of its commitment to become a more “innovative, assertive, and adaptive regulator,” the FCA has proposed a range of recommendations and potential remedies designed to ensure the buildings insurance market operates better for leaseholders and offers greater protection against soaring insurance costs.
These recommendations and potential remedies were based on a review carried out by the FCA, looking into the multiple-occupancy residential building insurance market and how firms can provide more affordable cover for leaseholders.
This review was commissioned by the former Secretary of State for Levelling Up, Housing and Communities on 28 January 2022 and is part of the FCA’s commitment to ensure consumers are protected and markets function effectively.
The review found that between 2016 and 2021, the average price of premiums for buildings with fire safety risks had more than doubled, seeing a 125% increase from £6,800 to £15,300.
It also showed that there was a reduction in the supply of insurance for multi-occupancy residential buildings, with some insurers leaving the market altogether, as well as a reduced appetite amongst insurers to take on new business due to falling profitability.
As a result, the potential remedies suggested by the FCA seek to give leaseholders greater protections and information about insurance costs, as well as improve the affordability and availability of insurance.
The FCA has proposed the creation of a cross-industry pool to limit the risk to individual insurers posed by certain buildings affected by flammable cladding or other material fire safety risks as well as promote further transparency on the information provided to leaseholders on the pricing of insurance policies.
These remedies should make it easier for leaseholders to challenge high insurance costs and make leaseholders ‘customers’ of buildings insurance.
The FCA has pledged to provide a progress update on these potential remedies in six months.