UK to put pressure on insurers, brokers to reduce premiums for fire-risk properties

"We will explore all possible options to reform the building insurance sector"

UK to put pressure on insurers, brokers to reduce premiums for fire-risk properties


By Mia Wallace

Speaking with Insurance Business UK following the launch of the British Insurance Brokers’ Association (BIBA)’s 2022 Manifesto, executive director Graeme Trudgill highlighted that cladding challenges remain an ongoing concern for the insurance sector, and there is still a lot to be done to mitigate this risk.

Today, Bloomberg has revealed that thousands of people living in high-rise apartments across the UK are due to receive better rates on their property insurance premiums, after years of spiralling costs in the wake of the Grenfell Tower tragedy. The 2017 West London fire killed 72 people and sparked a national outcry regarding the safety of high-rise residential properties, especially around their flammable cladding. Since then, many residents have struggled to secure mortgages or affordable insurance.

Bloomberg noted that the Financial Conduct Authority (FCA) is expected to push insurers and brokers to lower the cost for leaseholders as part of a government report due by the end of July. Insurers and ministers are also said to be in advanced and confidential talks to create an insurance pool to spread the risk of covering the most dangerous buildings – according to several unnamed sources.

In January, the FCA was asked to investigate why the cost of insurance had spiked so drastically, with some premiums having risen by over 100% a year, leaving leaseholders with “crippling costs,” according to Michael Gove, who was then levelling-up secretary.

The regulator has been considering imposing caps on the commissions that insurers pay brokers to direct large contracts to them. People close to the situation have disclosed that the FCA’s report is expected to acknowledge the challenge of assessing the emerging risks of cladding but also to criticise the price hikes and ‘sometimes cosy relationship’ between brokers and insurers.

“We urgently want to relieve the financial pressure of escalating insurance premiums for leaseholders,” the Department for Levelling Up, Housing and Communities told Bloomberg in a statement. “We will explore all possible options to reform the building insurance sector.”

The FCA did not comment.

Insurance pools

Insurance pools permit insurers to join forces and ensure coverage is available for systemic risks such as terrorism or flooding. Bloomberg highlighted the UK government is unlikely to provide a backstop for any property pool, according to the sources, who still think insurers and brokers can find a way to lower prices through this initiative.

The question of who should fix these dangerous properties has yet to be resolved. Suggestions have included the government’s proposal of an additional levy on developers to help cover these costs, which triggered protests from companies who felt they would be made to pay twice.

“Any further levy is not proportionate and poses a serious threat to businesses, jobs, investment in new sites, housing supply and affordable housing provision,” Home Builders Federation CEO Stewart Baseley said in a statement.

Bloomberg noted that the FCA’s report may link up with the government’s push to give more power to leaseholders. It has introduced rules banning so-called ‘ground rents’ on new properties, and made it easier and less expensive for leaseholders to extend their leases.

Commenting on the challenge facing the sector, BIBA’s Trudgill highlighted that the insurance profession is, “very sensitive to the fact that in some cases premiums have increased significantly at a time when leaseholders are also being asked to contribute towards remediation costs and other costs such as waking watches.”

“BIBA is liaising closely with the Association of British Insurers and the Housing Safety Minister’s Office to examine solutions for the provision of more affordable property insurance premiums for high-rise residential buildings that require fire-safety remediation work,” he added.

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