The Daily Telegraph

‘Immoral’ insurers are failing people in flats, says Clarke

- By Matt Oliver and Alexa Phillips

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’

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