The Financial Conduct Authority has proposed new rights and protections for leaseholders, in an effort to improve the transparency of the multi-occupancy leasehold buildings insurance market.

Under the proposals, leaseholders would be defined as customers of buildings insurance, with the changes explicitly requiring insurance providers to act in leaseholder’s best interests and bar firms from recommending a policy based on commission or remuneration.

Insurers and brokers would also need to provide more information about policies to leaseholders, including detail of any commissions.

An FCA review also published today found average per policy insurance broker commission rose by 46% over the review period. Firms in the sample paid over £80m of commission to other parties - in most cases the freeholder or the property managing agent.

The watchdog said it also found "significant shortcomings" on the part of some brokers in applying fair value rules to their remuneration practices and the impact on those ultimately paying the costs of multi-occupancy buildings insurance.

The FCA expects brokers to immediately stop paying commissions to third parties, where they do not have appropriate justification and evidence for doing so in line with the FCA's rules on fair value.

Additionally, the Department for Levelling Up, Housing and Communities has said it intends to ban the payment or sharing of insurance commissions with property managing agents, landlords and freeholds. DLUHC and the FCA will be sharing information to support this goal.

Sheldon Mills, executive director of consumers and competition, said: “We want to give leaseholders more rights and the information they need to exercise them. Importantly, under our proposals those selling multi-occupancy insurance will have to act in leaseholders’ best interests.

“Our review revealed large commissions paid by some brokers to freeholders and third parties, like managing agents, with little evidence of any value added to justify these payments We are taking action against these practices and we won’t hesitate to take further action if brokers don’t comply with our rules.”

In September 2022, the FCA’s report on multi-occupancy buildings insurance found that leasehold buildings insurance premiums had risen significantly since the Grenfell tragedy, with leaseholders facing substantially higher costs.

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