Column: Navigation

Why showing not telling is critical when it comes to fair value

Column: Navigation


By Graeme Trudgill

Some of you may have read the new FCA report on multi-occupancy buildings and broker remuneration, the new FCA consultation on proposed changes and the correspondence between Michael Gove, the FCA and BIBA. I am sure you will agree that they were far from an easy read.

As a wise person once said: “What has happened before no longer exists, what will happen next has yet to be written, but what we do here now has the power to determine the future.”

Taking that on board, this column will not look back at the whys and wherefores that led to these publications, instead, I am looking forward to what BIBA proposes to do now.  At this time our members continue to be focused on solving the problem of the cost of insurance for buildings that have significant fire safety defects, and which have suffered the most in terms of insurance premium increases.

We are very mindful of the threat to the commission remuneration model made by the Secretary of State in his letter, but we are sure that the situation is navigable. Brokers who do an incredible job placing these complex risks can earn a commission that represents fair value for the work they undertake, and their customers will benefit from the all-important cover.

In summary, our proposals include:

  1. Implementing the reinsurance pooling arrangement in progress with the ABI that aims to provide an answer to affordability and risk capacity for impaired multi-occupancy residential buildings.
  2. Working with our members to implement the pledge in our manifesto around fair value.
  3. Issuing new guidance to BIBA members on good practice in the construction of fair value assessments.
  4. Helping BIBA members follow the new common code for the collection of data relative to multi-occupancy buildings.
  5. Working constructively with the FCA on its coming consultation to improve transparency and disclosure to leaseholders regarding their insurance arrangements, putting them in a more informed position to challenge both the cost and scope of cover including remuneration arrangements.
  6. Continuing our discussions with Government about how to solve the issue of the lack of affordable professional indemnity insurance to accelerate the remediation effort.

We recently met with the Building Safety Minister, Lee Rowley MP. While he was grateful for the pathway we proposed, his point to us was to ‘show not tell’.  Taking that on board we will provide information gathered from members that shows how, as premiums have increased, they have introduced systems that have calibrated down their percentage earnings for higher risk buildings with cladding, to lessen the impact of the overall price increase on leaseholders.

We have seen some great examples of this recalibration in action, and we will work with our real estate members to prove that fair value can, and will, be demonstrated going forwards.

In terms of the 300 year plus history of the insurance industry, fair value assessments are a very new arrival.  It has been a steep and challenging learning curve that the industry is still navigating to perfect them so BIBA is commissioning some new guidance that will help and support to evidence that they are charging a fair amount for the work they do.

It is more than likely that Government has some skin in the game here. The FCA report notes that average premiums have increased from £7,470 in 2019 to £11,625 in 2022. It follows that IPT earnings flooding into Treasury have increased significantly because of this, yet Government provide no value to the distribution chain or leaseholders. Our 2023 Manifesto calls for a specific IPT exemption for cladded buildings undergoing or awaiting remediation and we have asked strongly that this be reconsidered.

The coming months will prove crucial in securing the future of the commission based model of remuneration. We are aware of course, that there is also the risk of a read-across of any proposed ban into other classes of insurance.

The benefits of a commission-based system are too many to list here, but the fact that a prospective customer can get a significant amount of advice, quotations and work done on their behalf free, before they make their buying decision is something that Government should seek to preserve. BIBA will be navigating these issues with our members to show how, going forwards, fair value is something our members can prove they are delivering in this and all other insurance provisions.

What are your thoughts on Graeme’s lastest column? Feel free to share them in the comment box below.


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