New insurance regulation for residential leasehold properties – are you clear on your responsibilities?
IPA Insolvency Practitioner newsletter, September 2024
Article by Kate Howard, Client Service Director, Marsh.
New rules for multi-occupancy building insurance policies were published by the FCA and came into force from December 31, 2023. These rules – which apply to all insurance contracts relating to multi-occupancy buildings, and which are specifically targeted at residential leasehold properties – impose additional duties upon insurers, insurance brokers, and property owners concerning the provision of insurance contract information to residential leaseholders.
These duties extend to include any party acting on behalf of the property owner, such as a property managing agent (‘PMA’), receiver, or insolvency practitioner.
Why have the FCA introduced these rules?
The FCA’s review was undertaken due to concerns raised about the adequacy and transparency of insurance cover for multi-occupancy residential properties.
Notably, residential leaseholders are typically bound to pay insurance charges, but pre-31st December 2023, they had limited visibility or influence over policy selection or price.
Of particular concern to the FCA was the practice of commission being shared between insurance brokers, property owners, and PMAs, enhancing the risk of excessive remuneration that did not deliver fair value.
What is the FCA looking to achieve?
- Transparency for residential leaseholders, to make it easier for them to identify and challenge poor practices, and incentivise all firms involved in the insurance distribution chain to deliver better outcomes for residential leaseholders.
- To ensure the buildings insurance policy is consistent with the needs and interests of residential leaseholders, and priced in a way that provides fair value, such that remuneration practices do not lead to poor outcomes for residential leaseholders
What information must be disclosed to residential leaseholders?
Where a residential property is occupied on a leasehold basis (including residential properties within a mixed-use building, i.e. where there is any residential in an otherwise commercial building); and where insurance costs are re-charged to the residential leaseholder, the following information must be disclosed:
- A ‘summary of cover’, providing an overview of the policy key features including coverage and exclusions; policy period; and insured property value
- Transparent disclosure of all remuneration earned by all parties involved in the insurance placement process, including insurance brokers, PMAs, and property owners
- Details of alternative quotations that were obtained, together with a brief explanation as to why the chosen policy was the best policy to meet the interests of all stakeholders, including the leaseholders
- Disclosure of any potential conflicts of interest between any parties involved in the insurance placement process
Who is responsible for providing this information
As leaseholders are typically not the contractual ‘customer’ of the insurance policy, the information will be produced by the insurer and insurance broker, and provided to the contractual customer, i.e. the policyholder, who in turn must pass this information along to all residential leaseholders.
The information must be disclosed as soon as reasonably practicable after the conclusion of the insurance contract.
Further information
Marsh are a specialist insurance broker providing insurance and risk management solutions to insolvency practitioners and receivers, and we are able to offer advice and assistance with any queries in relation to the above.
Please contact:
Kate Howard
07385 403705
Kate.Howard01@marsh.com
Please note that guest content does not necessarily represent the views of the IPA.