People living in condominiums could get better protection from high insurance costs under city regulator measures to improve the functioning of the building insurance market.
A cross-sector risk-sharing scheme could be set up to mitigate the risk to individual insurers posed by buildings subject to combustible cladding or other fire safety risks. This could help lower the price of insurance for these buildings, according to the Financial Conduct Authority (FCA).
Since the Grenfell tragedy, tenant farmers have faced significantly higher insurance costs.
The FCA report states: “In addition to the immediate horror of the events of June 14, 2017, hundreds of thousands of tenant farmers have subsequently endured the difficulties and trauma of living in buildings with known fire safety issues.
“These problems have been exacerbated by the associated increases in the cost of their insurance.”
The regulator was asked to investigate the market for multi-person insurance for residential buildings and to explore ways to provide better cover for leaseholders.
The survey found that there has been a decline in the supply of insurance for multi-family homes between 2016 and 2021, with some insurers exiting the market and a reduced willingness to take on new contracts, among other things.
Industry figures from 2016 to 2021 suggest that the average price of premiums for such buildings has more than doubled over this period, from £6,800 to £15,300.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Since the Grenfell tragedy, hundreds of thousands of tenants have endured the difficulties of living in buildings with known fire safety issues and these problems have been exacerbated by increases in costs. of their insurance.
“We will discuss measures to increase transparency for leaseholders about the price of their insurance and how leaseholders can be better protected.
Since the Grenfell tragedy, hundreds of thousands of tenant farmers have endured the difficulties of living in buildings with known fire safety problems and these problems have been exacerbated by the rise in the cost of their insurance.
“We expect the insurance industry to quickly work with us and the government to develop solutions to this problem, including developing pooling schemes and reducing commissions, making affordable insurance coverage more widely available.”
The FCA said it will provide an update on progress towards possible solutions in six months’ time.
James Dalton, director of general insurance at the Association of British Insurers (ABI), said: “We remain well aware of the challenges facing leaseholders affected by the cladding and fire safety crisis.
“We support the FCA’s recommendations on a risk-sharing scheme and have actively discussed various options with industry and government. Our work in this area continues.
“The FCA’s detailed analysis provides important insight into the state of the high-rise home insurance market, recognizing clearly that there is no evidence that insurers are making excessive profits.
“We recognize the issues raised by the FCA regarding the availability of information on these buildings and will work with our members, regulators and relevant industries to achieve greater consistency in data capture.
“We are also committed to improving transparency for leaseholders and will work with the FCA to implement a framework that makes this possible.”
Secretary of State for Leveling Up, Simon Clarke said: “Leaseholders need to be protected and I welcome the light the FCA report has shed on some alarming, if not offensive, practices in the sector.
“Managing agents who take bribes from brokers is wrong and needs to be stopped urgently.”