Biba issues series of commitments after FCA flat insurance report

The commitments have been sent in a letter to the Department for Levelling Up, Housing and Communities, now led again by Michael Gove.

The then Secretary of State at DLUHC, Simon Clarke, wrote to Biba CEO Steve White in September.

Clarke had demanded immediate changes to unfair commissions and a plan to reform market culture and practice after the regulator’s report into multi-occupancy buildings insurance.

Clarke had taken aim at “disturbing evidence on remuneration practices” citing commission sharing and levels of payment.

In particular he highlighted that broker commission accounted for 30% of the premium and that the average absolute value of commissions more than tripled for brokers between 2016 and 2021.

Recommendations

The FCA’s report featured recommendations and potential remedies to reform the flat insurance market including a cross industry pool and lowering commissions.

In its response to the FCA report Biba said it was aiming to draw up guidance with its specialist real estate members to promote greater transparency for leaseholders over the insurance purchase.

The trade body confirmed it will consider whether it is possible to develop a product information template. This, Biba said, could be used by members with freeholders and property managing agents to summarise the key aspects of the insurance arrangements for the benefit of leaseholders.

The broker body reported that it will work with members to promote a public statement of intent (see box).

The statement will be designed to reinforce “the principles around fair value and only sharing commission with third parties who are involved in the arrangement and/or administration of insurance for multi-occupancy buildings when FCA requirements are satisfied”, Biba said.

Transparency

The FCA had criticised a lack of transparency by the insurance sector in its dealings with leaseholders as well as “material issues and shortcomings” in data.

Biba promised to work with the Association of British Insurers, members and other relevant parties to standardise and improve the quality and granularity of information relevant to the underwriting of multi-occupancy buildings as much as possible.

The broker representatives said that doing so would mean trends within the sector could be measured more accurately and progress gauged in improving affordability and availability.

“We are alive to the fact that the insurance broking community is, on the whole, reliant on third party software houses and that there are cost and time implications for any IT changes that need to be made, which will ultimately have to be recovered by sharing these costs with clients,” Biba noted.

Pooling

The FCA had set out in its review that it will work with the insurance industry and government to develop proposals for how a cross-industry pool could work in practice, including considering the role of the reinsurance sector.

The regulator recommended Biba “engage with the design of the risk pool to limit the commission costs, reducing the price passed on to leaseholders”.

In its response Biba confirmed it will continue to work with the ABI and its members to implement the new facility for the most difficult cladded risks. And pointed out that this is an initiative which it developed in the first instance in partnership with specialist reinsurance brokers.

PI

Biba also highlighted that there was a shortage of adequate professional indemnity insurance that it said “is acting as a serious brake on the pace of remediation of cladded buildings”.

The trade body said it would continue to work with the government to address the shortage and build on the EWS1 intervention as a model – a government-backed PI scheme for EWS1 assessors was launched in September – to solve this wider problem.

“This is a very important point since we know that once a building has an agreed remediation plan and funding in place, Biba members can negotiate and have been negotiating more favourable terms for the property insurance with insurers, demonstrating the proactive role that brokers have been taking to deliver good outcomes for their clients,” Biba stated.

Manifesto

White told Insurance Age: “Biba has been actively engaging with DLUHC since February 2020 on the insurance issues that have stemmed from the Grenfell tragedy, featuring heavily in our manifesto documents, and these will continue to be an overriding priority going forwards.

“The commitments outlined will take a central position in our 2023 manifesto.”

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