The FCA has announced the implementation of a new policy for regulated entities in dealing with insurance of multi-occupied buildings. This follows the Regulator’s consultation process conducted earlier this year.
The intention of the rules is clear – insurers and brokers (regulated entities) must;
Leaseholders should be provided with sufficient information to challenge unfair practices in remuneration and premium recharges and insurers must take into account the needs of leaseholders when developing insurance products.
JPIC put forward several observations in response to the consultation and we are pleased to report that a number of them have been recognised by the FCA in putting forward the final rules statement.
Specifically, we asked for:
The new FCA policy comes into effect on 31st December 2023 and applies to contracts of insurance that are put into place from that date onwards (so it’s not retrospective).
The key points of the new policy are:
JPIC’s view is that the FCA has gone as far as it can to regulate the recharging of insurance premiums to residential leaseholders. Repeatedly in the policy statement the phrase “fair value” is used. There is recognition that remuneration exists in the distribution chain, but the onus is upon insurers and brokers (and any landlords who are FCA regulated), to ensure fair value and provide clear information to enable leaseholders to challenge poor practices.
It is pleasing that the FCA have listened to the representations made by JPIC and others in response to the consultation process, especially in clarifying that only residential leases are affected, and that the new policy applies only to policies placed on or after 31st December 2023.
The onus is upon regulated entities to comply with the policy – the FCA has no jurisdiction over organisations it does not regulate. However, the Government continues to look at legislation that would bridge this gap and potentially, remove the right of landlords to include remuneration within premium recharges to tenants.
For Real Estate clients, the immediate challenge going forward into next year, will be to show that premiums and the impact upon them of remuneration in the distribution chain, can be justified as giving fair value to the leaseholders who pay them.
If you would like to discuss this matter further, please contact Neil Timberlake.