As the rate of inflation rises rapidly, the majority of the British population are taking a severe hit on their spending capacity.
Consumer prices have risen to 9.4% since 2021, the highest recorded rate ever since February 1982. The Financial Conduct Authority have been prompted by a letter from the government to partake in an investigation into areas where costs can be alleviated for consumers. Furthermore, more pressure has come from the LibDems. In a letter to the Competition and Markets Authority from members of the Liberal Democrat Party, they stated that “urgent action is needed to protect an already vulnerable sector of society”
Since then, the FCA have launched an investigation into why premiums for tenants living in high-rise buildings and fire-risk apartments have soared. The Grenfell tower tragedy of 2017 seems like the event that prompted insurers to increase their prices for similar types of premises. Michael Gove had commented that leaseholders were experiencing “crippling costs” with their insurance.
The increase in premiums is due to insurers becoming more risk averse after the Grenfell disaster revealed that flammable cladding is being used on high and medium rise residential towers. On the other hand, it has also been said that commissions as high as 72% are being shouldered by unsuspecting tenants, which could be part of the reason why premiums have risen. There is a suspicion that freeholders who are in charge of arranging insurance for leaseholders, are prioritising their own renumeration over alternative policies that are better value. This issue has been attributed to the cosy relationship between insurers, brokers and third-party freeholders. There is also a sense of hesitance from policyholders to challenge their existing policies. This is because tenants tend to stick with the same insurer due to the long switching process.
The purpose of the FCA report is to make the buildings insurance market as fair and affordable as possible. The government also wants to identify all areas that have impacted the way the insurance marketplace is currently operating. But, can we expect any real changes to happen for tenants?
Although in its early stages, the FCA report has suggested to lower the cost of insurance for residential leaseholders. But how exactly are they going to implement this? Well, the report considers imposing caps on commissions that insurers pay to brokers in order to lower the price that clients have to pay. They criticise the price hikes that insurers have implemented year-on-year. In the letter to the CMA, Liberal Democrat MPs outlined that “profit-seeking” practices are the main drivers of high insurance prices. They state that hidden fees and bribes are distorting the way the insurance market operates and is contributing to “unfair” practices.
As the cost-of-living increases, it is good to see how the UK is acknowledging the unfair insurance costs for tenants. But, can we expect a real push to lower premiums for leaseholders? Regulators are pressuring firms to cut costs for those who are residing in multi-occupancy buildings. There are talks about establishing an insurance pool, according to the Insurance Business Mag. This would permit insurers to come together and ensure coverage for big accidents thus lessening the financial impact on an individual insurer. Meanwhile, members of the Liberal Democrat Party have stated that, although the FCA is “well intentioned”, their policies are “not potent enough to protect leasehold consumers because leasehold consumers are not the named insured on record”.