Proactive Investors - UK insurance brokers face pressure from the Financial Conduct Authority to cancel commission payments to landlords after policy costs have soared in recent years.
According to the FCA, 16 sampled brokers passed on over £80mln worth of commission to the likes of property managing agents, landlords and freeholds between 2019 and 2022, with the costs being footed by leaseholders who often had no choice to switch policies.
Most were unable to justify the payments, which coincided with a 40% rise in remuneration since the Grenfell Tower disaster prompted insurers to charge more.
Leaseholders will now be defined as customers under building insurance, the FCA explained, and firms barred from recommending policies based on commission or remuneration levels.
“We expect brokers to immediately stop paying commissions to third parties where they do not have appropriate justification and evidence for doing so,” the FCA said in a statement.
“The rule changes would explicitly require insurance firms to act in leaseholders’ best interests,” the authority added.
Though the FCA did not name specific firms involved, M2 Recovery insurance specialist Neil Holloway suggested proposed FCA rules giving leaseholders more rights would prompt a wave of class action lawsuits towards insurers and brokers.
Following the report, shares in insurers Aviva PLC (LON:AV), Admiral Group Plc (LON:ADML) and Beazley PLC (LON:BEZG) which all offer multi-occupancy insurance fell 0.9%, 0.8% and 0.5% respectively.