Growing Concerns Over Unfair Insurance Commissions

A disturbing development in the UK property market is severely impacting leasehold property owners. Evidence suggests the existence of unfair insurance commission practices, with commission rates paid by insurers to brokers reaching 30% or more—a cause for concern.

FCA Report Highlights High Commission Rates

The Financial Conduct Authority (FCA) has released a report on insurance for multi-occupancy buildings, highlighting excessive commission levels charged by landlords and managing agents.

• The report states that residential building insurance premiums doubled between 2016 and 2021.
• The commission rates paid by insurers to brokers vary significantly but often exceed 30%.
• Simon Clarke, Secretary of State for Levelling Up, has urged British Insurance Brokers’ Association (BIBA) to address the issue.

How Inflated Broker Commissions Affect Leaseholders

Leaseholders already pay property managing agents through service charges, yet freeholders and managing agents continue to receive additional broker commissions.

• The FCA has pledged to review brokers charging the highest commissions and consider further rules on remuneration.
• Simon Clarke labeled these commissions “unethical” and called for an immediate end to the practice.
• The report also identified a lack of transparency in insurance pricing and disclosure.

FCA’s Proposed Remedies for Transparency

To protect leaseholders, the FCA recommends several actions, including:

• Allowing leaseholders to challenge high insurance costs.
• Introducing more transparency in commission disclosures.
• Regulating freeholders, who currently have no legal duty to disclose commissions under the Insurance Act 2015.

Simon Clarke has also asked BIBA to propose industry reforms, including pooling solutions with the Association of British Insurers and improving market data transparency.

Managing Agents’ Perspective on Insurance Commissions

Unlike freeholders, managing agents are already required to disclose their commissions in servicechargesorted.co.uk/blogs/service-charge-disputes-what-cam-be-disputed-how-and-the-role-of-the-first-role-planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal'>service charge accounts.

• Reputable managing agents often charge lower fees for managing insurance matters.
• Commissions help cover proposal forms, claims administration, FCA compliance, and legal processes.
• Many industry experts argue that freeholders should also be legally required to disclose commissions.

A Call for Reform in the Insurance Industry

While managing agents are partially self-regulating, freeholders continue to profit from undisclosed commissions. The Insurance Act 2015 failed to mandate commission transparency for freeholders, leaving leaseholders vulnerable to excessive charges. With growing pressure from the FCA and government, the industry may soon face new regulations aimed at protecting leaseholders from unfair costs.