The Ministry of Housing, Communities and Local Government has has published a consultation on "Permitted insurance fees for landlords, freeholders and property managing agents", seeking views on proposals to prevent freeholders, property managing agents (PMAs) and landlords from imposing opaque and excessive charges on leaseholders related to building insurance, often in the form of commissions.
Instead, freeholders, PMAs and landlords would only be able to charge a fair and transparent permitted insurance fee to leaseholders.
Secondary legislation will set out what is permitted. These proposals relate to England and Wales. The consultation will inform UK and Welsh governments who will bring forward separate secondary legislation.
Any brokers who deal with, or who are, or who own, PMAs need to be aware of this and its implications.
The Government is seeking to introduce into law a ban to stop insurance brokers sharing their commissions with policyholders, freeholders and PMAs who will instead be allowed to charge leaseholders a fee commensurate with any insurance work done.
In January 2024 the FCA published new rules to bring in leaseholder protections and transparency with a requirement for firms to act in leaseholders’ best interests, treating them as customers when designing products. The new rules also introduced a ban on recommending a policy based on commission or remuneration levels.
Firms have been required to disclose policy information to their customer (usually the freeholder or the PMA) and ask that this is passed to leaseholders. Should this not happen, leaseholders can ask for this directly from firms. However, industry commentators have indicated that such leaseholder requests are sometimes ignored.
Firms must also ensure policies provide fair value, and that any commission shared with third parties is justified and evidenced in line with fair value rules.
The consultation asks 32 questions including; whether leaseholders are aware of what payments – if any – their freeholder or PMA receives for the arranging or managing of insurance; whether leaseholders have tried to challenge the payment of their freeholder or PMA for the arranging or managing of insurance; and what specific activities relating to the management and arranging of insurance do freeholders and PMAs currently carry out for their remuneration?
In some instances, commissions have fallen, but industry speculation suggests that premiums have not fallen as a consequence.
About the author
Al Haughton
A compliance technical expert, Al is UKGI's Senior Technical Resources Consultant providing 'back-room' technical support which includes everything from assisting Consultant colleagues with challenging or unusual queries, to updating UKGI's compliance manual, to writing and delivering training, workshops and webinars.
