UK regulator wants insurance pool for flammable-clad high-rises ready in two months

A new UK insurance risk pool to cover multi-occupancy buildings with flammable cladding could be ready for implementation within two months, under a set of new recommendations proposed by the Financial Conduct Authority (FCA). An FCA report says the cost of cover for mid- and high-rise buildings with flammable cladding has spiked by 187% since the Grenfell Tower fire. The FCA believes a cross-industry pool would limit the fire safety risk of multi-occupancy buildings to individual insurers, as well as reducing premium costs. The FCA has asked the Association of British Insurers (ABI) to work with it and the UK government to create a risk pooling scheme. It has also called on the British Insurance Brokers’ Association (BIBA) to participate in the design of the risk pool to limit broker commission costs. The government has also been asked to consider backing the pool, which some argue would be more effective in reducing rates for buyers more substantially and quickly. The ABI would develop criteria for buildings to qualify for cover under the risk sharing pool. “We would expect a plan for this arrangement and its implementation to be in place in the next two months. This plan should include estimates of the impact on premiums for eligible buildings,” the FCA says. Insurance for multi-occupancy buildings, largely apartment blocks above three floors or 11 metres in height, is mainly bought by the freeholder or property managing agent, with the costs passed on to leaseholders. Since the Grenfell Tower fire in London in 2016, the number of insurers willing to cover high-rise buildings has dwindled. The number prepared to underwrite buildings exposed to flammable-cladding risks has shrunk to a core group of five. The cost of cover for multi-occupancy buildings with flammable cladding averaged £75,600 in 2021, up 187%. Insurance for multi-occupancy buildings without identified fire risks doubled to an average of £13,000 per year. Sheldon Mills, the FCA’s executive director of consumers and competition, said: “Since the Grenfell Tower 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. “We will consult on measures to improve transparency for leaseholders about the price of their insurance and how leaseholders can be given greater protection. 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, which will make affordable insurance cover more widely available,” he added. The FCA also said it will consult on amending its rules to classify leaseholders as customers of buildings insurance, so they will be better protected under the FCA’s consumer protection remit. Its report criticises the cost of broker commissions, which average about 30% and are adding to the insurance bill for leaseholders. At the same time, some freeholders and property managing agents receive a share of broker commissions, the report says. “Brokers, freeholders and property managing agents were unable to quantitatively demonstrate how the increased cost of their commission was providing additional value to their customers,” the FCA says. “The level of some commissions in this market is an area of significant concern,” it adds.

UK regulator wants insurance pool for flammable-clad high-rises ready in two months

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