The Daily Telegraph
‘Immoral’ insurers are failing people in flats, says Clarke
THE Housing Secretary has warned insurers they face a crackdown on “immoral” kickbacks after leaseholders in apartment blocks were hit with ruinous policy bills after the Grenfell fire.
Writing in The Daily Telegraph, Simon Clarke accused the industry of “appalling practices” that lacked transparency and artificially inflated costs for thousands of families.
He criticised the sharing of lucrative commission fees by brokers, agents and building owners, a practice that is often not disclosed to leaseholders. Costs have more than tripled in value over five years to an average of £4,700 per building, a rise Mr Clarke called “disturbing”. In a separate letter to the Association
of British Insurers and the British Insurance Brokers’ Association, Mr Clarke demanded an end to secret commission fees and urged insurers to make premiums more affordable for leaseholders as quickly as possible.
The Housing Secretary threatened legislative action if the industry failed to address the issues on its own.
The intervention comes after the Financial Conduct Authority (FCA) raised “significant concern” about the huge fees being pocketed by the insurance brokers and managing agents who arrange cover for apartment buildings.
Since a fire ravaged Grenfell Tower in west London five years ago and caused the deaths of 72 people, a plethora of safety issues have been exposed in mid to high-rise buildings across Britain.
The scandal has left thousands of leaseholders with effectively unsellable flats, owing to a need for costly remedial works, as well as ruinously expensive bills for insurance.
Building freeholders or managing agents are typically responsible for arranging insurance but then pass the costs to leaseholders through ground rent or service charges.
Critics say this creates an incentive for unscrupulous freeholders and agents to create kickbacks for themselves by getting brokers to negotiate fatter commission fees that are then shared between the parties.
Between 2016 and 2021, the average premium soared from £6,800 to £15,300 – an increase of 125pc – the FCA found. For those living with cladding, premiums nearly tripled. The total costs include commission fees charged by brokers, who regularly demand a cut of more than 30pc. In most cases, freeholders or managing agents were then passed 50pc or more of the fee.
A spokesman for the British Insurance Brokers’ Association said: “BIBA welcomes the FCA report and broadly supports the recommendations made.”
‘Insurance brokers welcome the FCA report and broadly support the recommendations made’