Multi-occupancy building insurance reforms that target commission payments and include a best interests duty will start from next year, the Financial Conduct Authority (FCA) says following a review sparked by soaring premiums. 

Insurance firms will have to act in leaseholders’ best interests and treat them as customers when designing products and will be banned from recommending a policy based on commission or remuneration levels. 

Policies will be required to provide fair value and information on pricing, including the detail of any commission paid, must be available. 

Most flats in Great Britain are purchased on a leasehold basis. Terms are usually long and often last 90 or 120 years. 

“Our reforms will help to strengthen the insurance market by providing new protections for leaseholders,” FCA Consumers and Competition Executive Director Sheldon Mills said. “We will not hesitate to take action if firms breach these rules.” 

Following a review into broker remuneration practices, the FCA expects brokers to immediately stop paying commission to third parties, including property managing agents and freeholders, where they do not have appropriate justification and evidence for doing so in line with the rules on fair value. 

An FCA report published last year found that insurance issues were most severe for buildings affected by flammable cladding and other fire safety issues, while a lack of transparency over premiums, and difficulties obtaining even limited information, was adding to distress. 

“Leaseholders deserve greater transparency on the details of their buildings insurance policy and so we welcome this confirmation from the FCA of the final rules,” Association of British Insures Director of General Insurance Mervyn Skeet said. 

“This is an important step, but it remains the case that the ultimate solution to the problem is to remediate buildings to a standard that saves both lives and property and we urge government to progress this urgently.” 

The British Insurance Brokers’ Association (BIBA) says it welcomes the new policy stakeholder status for leaseholders and increased transparency. 

“The statement coincides with extensive new work BIBA has commissioned to help members better demonstrate fair value for the activities and services they provide in this sector,” it says. 

This work includes a new Fair Value Assessment Framework that members can adapt to “articulate, measure and evidence value” for both the commission they retain and any commission they might share with freeholders and property managing agents for insurance related activities they undertake. 

The Department for Levelling Up, Housing and Communities has previously announced that it intends to ban the payment or sharing of insurance commissions with property managing agents, landlords and freeholders.  

The FCA says it will work with the department to ensure that the action is fully delivered, including changing rules if required.