The Financial Conduct Authority (FCA) has published two ‘Dear CEO’ letters that have been sent by Sheldon Mills, Executive Director of Consumers and Competition, to insurance companies and insurance intermediaries on the rising cost of insurance for apartment blocks and multi-occupancy buildings. The FCA is responding to concerns expressed by consumer groups and parliamentarians about the increased costs being passed onto leaseholders and property owners. The rise in the cost of insurance has apparently been influenced by insurers’ assessment of risks such as unsafe cladding (in the light of the Grenfell Tower fire). The FCA believes that there might be other elements contributing to the increasing cost of insurance, including distribution costs.
The FCA expects insurers and intermediaries to consider actions that might alleviate the current difficulties faced by leaseholders and others. Accordingly, firms should consider both the freehold property owner and the freehold property owner’s duties towards their leaseholders (as leaseholders often pay for insurance through service charges) when considering fair value and what actions will be in the best interests of customers.
The Dear CEO letters remind firms that as product manufacturers that they are obliged to make sure that their products meet the needs of a target market and provide fair value for customers. The FCA states that distributors must ensure that they do not take action that will undermine these obligations. For example, for example by charging a commission that doesn’t represent fair value. The FCA proposes to collect information to examine firms’ approaches to pricing for multi-occupancy buildings to understand how risks such as fire hazards impact price. The FCA also intend to consider non-risk elements such as commission and other distribution costs.