Sarah Clements

In December 2023, the Financial Conduct Authority (FCA) set out new rules for multi-occupancy building insurance. These rules only apply to residential leaseholders. They do not affect commercial properties.

In this post we will review the new rules that came into play and assess the effect these new rules have had on the market over the past year.

Why Were New Rules For Multi-Occupancy Buildings Insurance Introduced in 2023?

The FCA’s new rules were devised in response to certain concerns that surrounded insurance for high-rise buildings following the 2017 Grenfell Tower fire. It was found that the insurance market was not working in the interests of leaseholders.

On buildings insurance policies for multi-occupancy properties, the freeholders are the insured party, rather than the leaseholders. As a result, insurers and brokers rarely considered leaseholders’ needs. On top of this, leaseholders did not have a say in how their cover was arranged, and they had no means of challenging any decisions made about their cover.

The FCA established new rules to apply to all leasing contracts completed from 31 December 2023, including renewals. The new rules apply to the building insurance policies for any leasehold dwelling in the UK, of any size and of any type. Specifically, the changes are intended to benefit leaseholders who pay a “service charge” as part of their lease, which contributes to building insurance cover.

The only instances where these rules do not apply are in commercial properties leased by businesses, and in rented accommodation where there is no itemised cost for insurance.

The FCA’s NEW Rules For Multi-Occupancy Building Insurance

The new FCA rules are as follows:

New Disclosure Documents

There must be more transparency over any decisions made about a building insurance policy by freeholders. Plus, new disclosure documents are now necessary to make it clear to leaseholders exactly what they are getting for their insurance premiums.

The FCA stipulate that these documents must be designed with a consumer audience in mind, meaning that they must be more accessible and not contain overly technical language.

Insurers and brokers have a responsibility to share these documents with policyholders, who then have an obligation to share them with leaseholders. For more information, you can read a full guide to the content that the FCA outlines for these disclosures.

Leaseholders are Now Considered Customers

As leaseholders are now considered customers in insurance arrangements, insurers and brokers must provide the same level of service and transparency as they would to any other customers.

This has numerous implications on how insurers and brokers operate. For example, under this new rule, insurers and brokers must ensure that any renumeration decisions are not just in the freeholder’s best interests as a policyholder, but also in the leaseholders’ best interests.

Insurers and Brokers Must Provide Fair Value to Leaseholders

As leaseholders typically pay their own insurance premiums, then insurers and policyholders have an obligation to deliver a valuable product at a fair price, with total transparency on any pricing decisions.

The Effect of the New Rules For Multi-Occupancy Buildings Insurance One Year On

These new rules have been in place for almost a year now. How has it affected the insurance market for multi-occupancy buildings?

The new rules appear to have kickstarted a national conversation about leaseholders’ rights. It has emerged that, in recent years, leaseholders have paid hidden insurance commissions as part of their “service charge”.

Until these new rules came in, leaseholders had no say in the decisions that freeholders made regarding buildings insurance. It has emerged that certain freeholders may have agreed to pay higher premiums for cover, allowing brokers to receive larger service fees. In exchange, freeholders benefited from commissions in exchange for choosing this insurer.

The higher premium payments were passed on to leaseholders, who did not receive any added value. Worse, they often had no idea that such arrangements had taken place, and even if they were made aware, they would have no ability to influence any decisions.

2024 Class Action Lawsuit against Hidden Insurance Commissions

In July 2024, a class action lawsuit was launched against these “hidden insurance commissions”, which one solicitor described as a “national scandal”.

Such secret arrangements and underhand commissions would be in breach of the new FCA rules. The British Insurance Brokers’ Association has welcomed these reforms. They have also announced their plans to produce guidance for brokers to help them ensure that they value leaseholder interests alongside freeholder interests.

Paul Stenning, Divisional Director, Real Estate & Construction, James Hallam, said:

“These new rules should help to level the playing field in an area of insurance that has traditionally been exploited by certain parties. As a prudent specialist broker, we welcome these new rules and have embraced the rationale to ensure that our clients’ insurances are placed with an emphasis on a combination of breadth of cover, security of insurers, and fair and appropriate insurance premiums.

“Our advice to freeholders who may be concerned about their premiums is don’t be afraid to ask your broker or managing agent for disclosure of costs and fees as you are entitled to know exactly what your leaseholders’ premium payments go towards. And of course, don’t forget that you are within your rights to seek alternative quotes.”

Waiting For The Autumn Budget

Since the FCA introduced the new rules, the UK has elected a new Labour government. At the time of writing, the details of Chancellor Rachel Reeves’ Autumn Budget, and the implications it might have on the insurance industry, are unclear. However, there are concerns that the new government may look to raise insurance premium tax (IPT).

Biba has called on the new government to cut the headline rate of IPT from 12% to 10%. On top of this they have called for an IPT exemption for all multi-occupancy residential buildings that are either currently undergoing, or in need of, cladding remediation.

In a statement, Biba said: “We believe that IPT is a tax on the poor and vulnerable, and a tax on businesses at a time when we want them to invest more in risk management.”

Are You Struggling to Get Multi-Occupancy Building Insurance?

There have been concerns that, following these new FCA rules, insurers and brokers may leave the market, or else limit their cover options.

If you are a freeholder, and you have struggled to get multi-occupancy building insurance as a result, we can help you.

We are an independent Lloyd’s broker with a dedicated team of experienced insurance professionals. We are committed to getting you the cover you need at a price you can afford.

Talk to us, and we can help you ensure you have enough cover to protect your multi-occupancy property at a truly competitive price. We will also help you ensure you meet the new FCA regulations, and that your insurance meets your leaseholders needs, as well as your own.

Get in touch for a free quote today.

Property developers need a diverse range of insurance products to cover the various different aspects of their projects.

In this post we will explore the insurance cover you need as a property developer to ensure you are adequately covered for all risks. We will also discuss the benefits of choosing owner controlled insurance programme (OCIP) for your property development business.

Essential Insurance For Property Developers

Property development insurance policies should include cover for:

• Construction All Risks – Cover for physical loss or damage to the contract works, whether caused by fire, flood, or other incidents.
• Delay In Start-Up – If your project takes longer than expected, your clients could lose revenue, and could make a claim against you. Delay in start-up insurance provides cover for any financial loss following such delays.
• Third-Party Liability – Cover for any third-party property damage, or any third-party accidents or injuries, sustained as a result of your project.
• Public Liability – Cover for any damage to public property, or any accidents or injuries sustained by members of the public, as a result of your project.
• Existing Property – If the property development project is a renovation of an existing property, you will need cover for any damages caused to the existing structure stemming from your project.
• Employer’s Liability – If you employ any staff, you have a legal requirement to get employer’s liability insurance, to cover your workers for any accidents or injuries they sustain on the job.

Additional Insurance Property Developers May Need

Depending on the nature of your project, you may need some additional cover. Specialist property developer insurance products include latent defects cover and rights of light cover. For example, if your project involves repairing a church in England or Wales, you may have a legal obligation to get chancel repair liability cover.

Why You Should An Choose Owner Controlled Insurance Programme (OCIP)

Some property developers allow contractors and other third parties to arrange the insurance cover for development projects. This is a risky approach, as there is no guarantee that you will get all the cover you need. The best way to ensure your project has adequate cover for all risks is with an owner controlled insurance programme (OCIP).

This essentially means that the property developer has full control over the policy and the associated costs. This way, you can guarantee that you will have full cover for every aspect of your project. On top of this, the added control means you can get exactly the cover you need at the best possible price. As well as avoiding the risk of underinsurance, you will also avoid paying extra for any unnecessary overlaps in premiums.

Finally, getting your insurance on an OCIP basis can result in more straightforward claims processes. Often, it means you will only have to make a single claim on a single policy, and any payments will be made directly to your business.

Talk To James Hallam About Your Property Developer Insurance Needs

James Hallam is an independent Lloyd’s broker with a dedicated team of experienced insurance professionals. We know that no two property development projects are ever quite the same, and we are committed to getting you the cover you need at a price you can afford.

Talk to us, and we can help you ensure you have enough cover to protect your project, at a truly competitive price. We will take the time to understand your risks so we can tailor a flexible property developer insurance package that offers full cover at outstanding value.

Get in touch for a free quote today.

If you are the freeholder for a property, you may have certain duties and responsibilities when it comes to insurance.

In this post we will outline the key freeholder insurance responsibilities and duties. We will also explore a recent change in the law, and outline how this might affect you as a freeholder.

Key Duties and Legal Responsibilities For Freeholders

The Landlord and Tenant Act 1985 and the Landlord and Tenant Act 1987 outline some key legal obligations that apply to all freeholders – that is, the party who owns the land on which a property is built.

These legal obligations include:

• Repairing and maintaining the building structure.
• Cleaning and maintaining any communal areas in the property, such as hallways, stairs, lifts, and doors.
• Setting and collecting ground rent and service charges.
• Delivering management reports to leaseholders to outline how ground rent and service charges are spent.

Do I Need Freeholder Building Insurance?

Your leasing arrangement may stipulate that, as a freeholder, you need to get suitable building insurance for your property. Additionally, your local council regulations might specify that you need some form of protection in place for your tenants. Getting adequate cover might also be a key requirement of your mortgage arrangement.

Yet even if you do not have a legal responsibility to get insurance, it remains essential that you get suitable cover for any potential loss, damages, or legal issues.

The Risk of Inadequate Cover

Without adequate cover in place, you might be personally liable for any losses or damages arising from incidents at your property. Even a small claim can come with a huge financial cost.

Specialist insurance provides freeholders, leaseholders, and tenants with essential peace of mind that everything will be taken care of should anything ever go wrong.

What Type of Insurance Do Freeholders Need?

You might see freeholders building insurance referred to as “block of flats insurance”, or “multi-unit dwelling insurance”. In any case, it is a specialist form of cover for property owners who provide accommodation for multiple residents.

You should be able to get a bespoke policy that is tailored to meet your specific needs as a freeholder. Yet most policies will include cover for the following:

• Structural damage, including subsidence.
• Flooding, whether caused by burst pipes, escape of water, or otherwise.
• Loss of rent.
• Alternative accommodation for tenants, should your property become uninhabitable.
• Break-ins, vandalism, and theft.
• Public liability and third party liability – for claims involving accidents or injuries sustained while on or near your property.

New Multi Occupancy Rules on Residential Properties

The FCA recently introduced new multi occupancy rules on residential properties, which came into effect on 31 December 2023. These changes affect both leaseholders and freeholders.

Essentially, the new rules require insurance firms to be more transparent when providing key information to leaseholders and freeholders.

These changes apply to multi-occupancy residential buildings including multi-tenanted leasehold properties, buildings converted into individual flats, and mixed commercial and residential occupancy buildings. They may bot apply to Houses in Multiple Occupancy (HMOs).

For more information, contact your insurer.

Talk To James Hallam About Your Freeholder Insurance Needs

James Hallam is an independent Lloyd’s broker with a dedicated team of experienced insurance professionals. We are committed to getting you the cover you need at a price you can afford.

Talk to us, and we can help you ensure you have enough cover to protect your freehold property at a truly competitive price. We will take the time to understand your risks so we can tailor a flexible freeholder building insurance policy that offers full cover at outstanding value.

Get in touch for a free quote today.