The FCA’s Multi-Occupancy Building Insurance Reforms

The FCA has recently confirmed new measures to support leaseholders in the multi-occupancy buildings insurance market.

Background

Following a lengthy and sporadic history of UK market reviews, the Grenfell tragedy and Government instruction, the FCA has consulted on a number of requirements in relation to the provision and distribution of multi-occupancy buildings insurance contracts. The FCA’s Policy Statement has now been published, including the final Rules and Guidance. These will impact insurers, but more specifically will impact those firms and businesses in the arranging and distribution chain. This will include insurance intermediaries (being within the reach of the FCA’s Rules) but may also have a knock-on impact on property freeholders and the Property Managing Agent (PMA) sector.

In the longer term, the current Government has indicated that it will act to ban the sharing of commissions with freeholders and the property management sector in relation to the arranging of multi-occupancy insurance contracts.

The upcoming requirements

Following the introduction of the new Rules, which will come into effect on 31^st December 2023, firms will need to become familiar with a number of key new and amended definitions in the FCA’s Handbook Glossary. There may be a wider impact of one of those definition changes, outside of multi-occupancy buildings insurances.

Disclosure requirements

The most significant new requirement is the introduction of a set of disclosure Rules in the new ICOBS 6A.7.  These require a number of disclosures to be prepared and sent to the customer, with an instruction to that customer (usually the property freeholder or PMA) to then provide the disclosed information to any leaseholder of the building in relation to which the multi-occupancy building insurance contract provides cover.

The disclosures relate to:

• a summary of the cover;
• pricing information;
• remuneration information;
• placing and shopping around information; and
• conflicts of interest information.

Where a firm is in contact with, or has contact details for, leaseholders, it may meet the ‘disclosure to the customer’ requirements by instead providing the information directly to the leaseholder and must do so where it has been made aware that the leaseholder has not received any disclosure information from the customer.

Other Rule and Guidance additions or changes

In addition to the new disclosure requirements set out in the new ICOBS 6A.7, there are impacts in relation to:

• remuneration considerations in SYSC 19 F.2;
• the customers’ best interests Rule at ICOBS 2.5.-1 R (including new Guidance in that regard at ICOBS 2.5.5 G and 2.5.6 G);
• in PROD 1, clarifications of:
• the scope of the exclusion of contracts of large risks from PROD 4,
• who is included within the term ‘customer’ in PROD 4.2 and PROD 4.3, and
• considerations of whose interests must be taken into account in the fair value considerations of multi-occupancy buildings insurance contracts; and
• in PROD 4, the scope of the assessment of value, including within the distribution chain, for manufacturers and distributors.

If you have any questions, please get in touch.