Landlords will be able to sue over rip-off building insurance policies

The Financial Conduct Authority (FCA) has revealed that it is going to reform the multi-occupancy leasehold insurance market which will see landlords and leaseholders getting the right to sue insurance firms.

The move will, the FCA says, help leaseholders get new protections and rights to improve transparency.

The Daily Telegraph reports that the city regulator is clearing the way for flat owners and buy to let landlords to claim back building insurance commission fees – which could run into ‘billions of pounds’.

That’s because an investigation found that some insurance firms were paying ‘secret commissions’ on building insurance.

Leaseholder is to be defined as a customer

Now, a leaseholder is to be defined as a customer of buildings insurance under new FCA rules that will give owners the grounds for claiming back thousands of pounds in fees that were wrongly charged.

The rules will explicitly require that insurance firms act in a leaseholder’s interests and ban them from recommending policies that are based on the commission they might earn.

The Telegraph says the managing agents and freeholders have been charging up to 62% in commission fees on building insurance in a scandal that came to light after the cladding crisis led to inflated building insurance bills.

An investigation into 16 firms found that the broker commission charges, on average, for building insurance premiums grew by nearly half between 2019 and 2022.

This commission accounted for a fifth of the rise in insurance premiums that leaseholders were forced to pay in that period.

Expected to act in a leaseholder’s best interests

Under the rule changes, insurance firms would be expected to act in a leaseholder’s best interests and bar firms from recommending an insurance policy based on remuneration commission levels.

The FCA says it is expecting brokers to stop paying commissions immediately to third parties and these will include freeholders and property managing agents when they do not have appropriate evidence or justification for doing so.

Sheldon Mills, the FCA’s executive director of consumers and competition, said: “We want to give leaseholders more rights and the information they need to exercise them.

“Importantly, under our proposals, those selling multi-occupancy insurance will have to act in leaseholders’ best interests.”

He added: “Our review revealed large commissions paid by some brokers to freeholders and third parties, like managing agents, with little evidence of any value added to justify these payments.

“We are taking action against these practices, and we won’t hesitate to take further action if brokers don’t comply with our rules.”

Rules will lead to an ‘avalanche of claims’

The Telegraph quotes Neil Holloway, the founder of insurance specialist M2 Recovery which helps to claim back commission fees, and he said the rules will lead to an ‘avalanche of claims’ from flat owners – and many of these are buy-to-let investors – for repayment.

He told the newspaper: “We’re seeing a lot of claims management companies that are getting themselves organised and authorised specifically to attack this particular marketplace.

“They see this as the next big explosion.”

A spokesperson for the Department for Levelling Up, Housing and Communities said: “These findings are completely unacceptable and lay bare the shocking practice of brokers fleecing innocent leaseholders.

“Whilst the measures outlined by the FCA are a welcome first step, these don’t go far enough to protect leaseholders.

“We will be urging them to take immediate enforcement action on the unreasonable practices highlighted in this report.”

Gove threatens ‘severe consequences’ for cladding companies

Meanwhile, Michael Gove, the housing secretary, is warning of severe consequences for those cladding companies who are refusing to fix their buildings.

Mr Gove has now written to investors in Saint-Gobain, Arconic and Kingspan, urging them to use their influence to encourage the companies to engage constructively in finding a resolution.

He said: “It cannot be right that cladding companies continue to profit whilst so many innocent, hardworking people face financial hardship and misery.

“To those cladding companies who fail to do the right thing: you will face severe consequences and I will use all commercial and legal tools available to me to ensure you take responsibility.”

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