Five brokers to scrap third-party leasehold commissions


Five insurance broking groups have pledged to stop sharing buildings insurance commissions with landlords and to cap their own fees.

As reported by the Financial Times, Willis Towers Watson, Lockton, Brown & Brown, Bridge and PIB have all agreed with the government to end the practice of sharing commissions with third parties, and to cap the proportion of the premiums they take at 15%.

The agreement is however, only applicable to buildings taller than 11 metres with fire-safety issues.

Lee Rowley, minister for Building Safety, was reported to have welcomed the decision of the brokers.

He was quoted by the FT saying: “These brokers are to be congratulated on their decision; we now need to see further action from others in the broader insurance and broker industry to accompany it.”

We will restore true home ownership to millions of people and end the reign of rip off freeholders and incompetent profiteering management companies.
Rachel Maclean, Housing minister

The move comes after brokers faced a tough time in the spotlight following publication of an FCA report which found £80.7m of broker commissions for multi-occupancy buildings was passed on to third parties in less than four years.

It also found that one broker had charged as much as 62% commission on one policy, which prompted the FCA's Sheldon Mills to admit the regulator needed to be "tougher on brokers”.

The investigation into this practice came as a result of a tribunal which ruled that £1.6m paid to a third party, Westminster Management Services, by Reich was not rightly charged to the leaseholders of the Canary Riverside complex in London.

Following the release of the report, the FCA told brokers of multi-occupancy buildings to “immediately stop paying commissions to third parties where they do not have appropriate justification and evidence for doing so”.

It then announced new reforms on brokers, due to come into force in 2024, forcing insurance firms to act in leaseholders’ best interests, treat leaseholders as customers when designing products, and banning them from recommending an insurance policy based on commission or remuneration levels.

Insurers will also be required to ensure their insurance policies offer fair value to leaseholders and provide important information about their policy and its pricing, including the detail of any commission paid for leaseholders.

King’s Speech

The issue around leasehold is expected to be included in the King’s Speech, due to be delivered on 7 November.

Housing minister Rachel Maclean confirmed the King's Speech will introduce a bill to phase out some leaseholds in England and Wales.

In a social media post, she said: “We will restore true home ownership to millions of people and end the reign of rip off freeholders and incompetent profiteering management companies.”

However, it is expected the bill will only bring about change for new houses, and not new flats.

The housing department estimates there are almost five million leasehold homes in England, 70% of which are flats.

Harry Scoffin, co-founder of Commonhold Now, a campaign group looking to abolish leasehold altogether, said in a series of social media posts that the reforms do not go far enough, calling it "shocking”.

He said: "“The reported leasehold reform plans do little to nothing to liberate existing leaseholders in flats en masse, so that they can gain control of their buildings, charges and service providers.

"Leasehold will only be axed on houses, of which a handful are built a year anyway, and the opportunities for consumer detriment are minimal now with ground rents banned.

"The most shocking thing of all is that future flatted developments will not be commonhold or share of freehold. This was low hanging fruit for the government and they ducked it again.”

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