New regulations effective from 1st January

Multi-occupancy Building insurance reforms and wider changes

The FCA has confirmed new measures to support leaseholders in the multi-occupancy building insurance market. From the 31st December 2023 insurance firms must act in residential leaseholders' best interests, treat residential leaseholders as customers when designing products.

Background

Following a lengthly and sporadic history of UK market reviews, and after the Grenfell tragedy and direct government instruction, the FCA consulted on a number of requirements in relation to the provision and distribution of multi-occupancy building insurance contracts. The FCA's policy statement has now been published, including the final rules and guidance. These will impact insurers and those firms and businesses in the arranging and distribution chain. This will include insurance intermediaries (being within the reach of the FCA's rules) but may also have a knock-on impact for property freeholders ,landlords, and property managing agent (PMA) sector.

The key elements of the new rules and requirements can be split into three main areas;

1. New and amended definitions and their impact

2. Disclosure requirements

3. Other rules and guidance additions or changes

Disclosure Requirements

The most significant new requirement is the introduction of a set of disclosure rules, relating to multi-occupancy building insurance contracts. These new rules require a number of disclosures to be prepared and sent to the customers, with an instruction to that customer (usually the property freeholders or PMA) to then provide the disclosed information to any residential leaseholder of the building in relation to which the multi-occupancy building insurance contract provides cover.

For renewals due on or after 31st December 2023, firms must ensure that the disclosure information is provided as soon as reasonably practicable after the renewal date.

Where a firm is not in contact with, or has contact details for, leaseholders, it may meet the 'disclosure to the customer' requirements by instead providing the information directly to the leaseholder. In particular, the firm must do this where it has been made aware that the leaseholder has not received any disclosure information from the customer. Where it has been made aware that the leaseholder has not received any disclosure information from the customer.

What must be disclosed?

A summary of the cover, which must include:

• the name of the insurer and its regulatory status,

• the type of insurance,

• the features of the policy, including the main risks included, the main benefits, coverage and exclusion of the policy , and its terms and duration, and

• the insured sum for the building and, in the case of a flat or other dwelling that is not a flat, the amount for which the flat or dwelling is insured if that detail is specified within the policy.

The policy premium including IPT and (if appropriate) VAT

• Where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level or at individual flat level if specified within the policy (which can be estimated subject to 'reasonable care' being applied to the calculation of the estimate).

The remuneration which any authorised intermediary receives for arranging the insurance.

• In addition to the details of the remuneration received by the intermediary, the disclosure must also include remuneration or other financial incentives intermediaries pay or give o other parties including unregulated PMAs and freeholders.

• The remuneration must be set out in cash terms (estimated if necessary).

The number of alternative quotes

This includes alternative quotes from the insurer / insurance undertaking with which the policy was taken out, and alternative quotes from other insurers/ insurance undertakings. This disclosure must include a brief explanation of why the broker has proposed or recommended that the policy is in the interests of both the freeholders and leaseholders. Further details of the additional quotes must be provided o request.

Information about potential conflicts of interests

These disclosures relate to ownership links between the intermediary and a given insurance undertaking (i.e., if one has 10% or more of the voting rights or capital in the other), and whether the intermediary is representing the customer or is acting for and on behalf of the insurer.

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