Allianz makes changes to leasehold products following FCA reforms

In September, the Financial Conduct Authority outlined new regulations set out to come into effect in the new year.

These reforms mean insurance firms will be forced to act in leaseholders’ best interests, treat leaseholders as customers when designing products, and will be banned from recommending an insurance policy based on commission or remuneration levels.

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

This came following various updates in the story revolving around broker commissions in multi-occupancy insurance.

Allianz rings in the changes

In an email Allianz sent to brokers, the insurer outlined the actions it was taking with regard to the three relevant products.

It said: “We have three products that are within scope for changes: Complete Property Owners, Property Owners Select and Real Estate Select.”

It said its product development processes and value assessments “already take the Leaseholders' needs into account”, so the statements within its distributor product guides “remain unchanged”.

However, one of the new reforms aims to improve transparency within the multi-occupancy market, and “enable leaseholders to receive clear and accessible information about the building insurance arrangements in connection with the building in which they are tenants”.

As a result, for all three products, Allianz outlined how it will be reviewing and updating its documentation “to be able to provide key information about the product and services provided to Leaseholders”.

The email continued: “We'd encourage you, our brokers, to provide this information for applicable Leaseholders under the Policy, however where a Leaseholder contacts Allianz directly for this information, we'll direct them back to the Intermediary or the policyholder in the first instance.

“On second contact from a Leaseholder, once we've confirmed their identity as a Leaseholder, we'll provide them with the required information.”

Allianz will also be producing new documents to reflect the information requirements for leaseholders (see box).

Capping commissions and other changes

Allianz has also revealed that for all three products, it is limiting commission to a maximum of 30%, including all brokerage work and any work undertaken by parties on behalf of the broker.

However, for its Complete Property Owners product, that cap does not apply if commission has been “agreed by exception on delegated/specialised arrangements where there is demonstrable added-value for the customer.”

It also said: “Any Complete Property Owners accounts that currently have a standard commission above 30% will automatically be reduced for new business and renewals from 31 December 2023. Customers on these accounts may see their premium reduced accordingly.”

For its Property Owners Select and Real Estate Select, that commission cap increases to 35% “where there is demonstrable added-value for the customer”.

Allianz is also limiting the use of risk management funds to when evidence of value can be demonstrated for all policy stakeholders resulting in a reduced loss ratio, and removing all forms of low claims rebates.

Catherine Dixon, chief underwriting officer at Allianz Commercial, said: “We support measures that ensure people feel safe and secure in their homes and will be closely following the progress of the Bill.

“Regards the FCA’s work around multi-occupancy we’ve already been in touch with our broker partners to explain our stance and how we will work together in the future. We’ve been looking at the whole value chain including remuneration and considering the best ways to provide information to leaseholders.

“We’ll be producing new documents designed for leaseholders at a building or dwelling level – depending on the policy – and are encouraging brokers to provide the information to applicable leaseholders. Insurance is there to protect when things go wrong, and it is important that all stakeholders have an understanding of what cover they are contributing to.”

Compliance consultant Branko Bjelobaba applauded Allianz or its efforts.

He said: “They have capped commissions and ensured that their brokers understand that they are wanting to ensure good customer outcomes themselves and that everyone acts in the best interests of all stakeholders including leaseholders.

“Brokers will however still need to ensure that the commission level paid by Allianz and other insurers, are not excessive for the services being provided. It is down to brokers to ensure that they articulate the services they and others provide and disclose and justify all their earnings however labelled.”

Allianz’s email to brokers also comes after Levelling Up Secretary Michael Gove introduced the Leasehold and Freehold Reform Bill to parliament on Monday.

The Bill sets out to give leaseholders more power, while banning opaque and excessive buildings insurance commissions for freeholders and managing agents.