UK regulator outlines post-Grenfell insurance remedies
The Financial Conduct Authority (FCA) has proposed creating a “cross industry” insurance pool and other measures to reform the UK multi-occupancy buildings insurance market.
FCA made the recommendations as part of its review following the 2017 Grenfell Tower fire tragedy, which has since led to sharp rises in insurance costs as insurers withdrew completely or reduced their risk appetite for high-rise residential buildings.
The review found there has been a reduction in the supply of insurance for multi-occupancy residential buildings between 2016 and last year.
“This appears to be the result of the falling profitability of this line of business,” the FCA says.
Former Secretary of State for Levelling Up, Housing and Communities Michael Gove commissioned the review earlier this year in January.
The FCA says creating a “cross industry” pool will limit the risk to individual insurers posed by certain buildings affected by flammable cladding or other material fire safety risks, and is aimed at reducing the price of insurance for these buildings.
Industry data from 2016 to last year indicates the average price of premiums for such buildings has more than doubled over this period, from £6800 ($11,250) to £15,300 ($25,314).
“Since the Grenfell tragedy, hundreds of thousands of leaseholders have had to endure the difficulties of living in buildings with known fire safety issues and these problems have been made worse by increases in the cost of their insurance,” Executive Director of Consumers and Competition Sheldon Mills said.
“We expect the insurance industry to work quickly with us and government to develop solutions to this issue, including developing pooling arrangements and reducing commission, that will make affordable insurance cover more widely available.”
The FCA has also proposed increasing the amount and transparency of information available to leaseholders on the pricing of the insurance they are paying for; making it easier for leaseholders to challenge high insurance costs passed on to them; and making leaseholders “customers” of buildings insurance.
The regulator will provide an update on progress towards potential remedies in six months.
UK insurers say they support the creation of a risk sharing pool as well as recognising the matters raised by the review.
The Association of British Insurers (ABI) says the FCA’s detailed analysis provides important insight on the state of the insurance market for high-rise residential buildings with a clear recognition that there is no evidence to suggest insurers are making excessive profits.
“We recognise the issues the FCA raises regarding the availability of information on these buildings and will work with our members, regulators and relevant industries to achieve greater consistency in recording data,” ABI Director of General Insurance James Dalton said.
“We are also committed to improving transparency for leaseholders and will work with the FCA to implement a framework that enables this.”
He says supporting leaseholders to reduce insurance costs is a “priority” for the industry.
“In the longer term, we continue to urge the Government to progress swifter remediation of buildings to a standard that protects both lives and property as this provides the ultimate solution to high insurance costs,” he said.
