Homeowners are facing a demand from regulators to probe hidden commissions paid to freeholders of flats after their building insurance premiums went up by 400 per cent.
Liberal Democrats said the dramatic increase in insurance costs rubs “salt in the wounds” for hundreds of thousands of residents trapped in potentially unsafe homes that they cannot sell because of fire safety defects discovered in the wake of the Grenfell Tower tragedy. ,
The party, along with campaign group Leasehold Knowledge Partnership (LKP), is calling on the competition watchdog to take steps to ban commissions paid by insurance firms to freeholders and the block’s management agents. They argue that the payment gives freeholders a financial incentive to negotiate higher premiums and worse insurance cover for lessees.
Residents facing bills of thousands of pounds to remove flammable cover and fix other fire risks have seen insurance bills rocket. The increase, while distributing a payday to freeholders, managing agents and brokers, adds to further financial woes on homeowners, who deduct all insurance premiums they negotiate but must pay leaseholders. .
There is no legal obligation for freeholders to tell leaseholders how much mark-up they add to the cost of the premium, which can be up to 72 percent. Commission rates of 20 percent are typical.
Lib Dems has told the Competition and Markets Authority (CMA) that lessees in unsecured blocks are “already standing on the edge of a cliff”.
“So to allow unfair practices that subject many leaseholders to huge hidden mark-ups in their already punishable high premiums is to rub salt into the wounds.
“There is a need for immediate action to protect the already vulnerable section of the society.”
The CMA said it could not comment on any possible investigations, but the watchdog has taken a more strict stance on leasehold assets, releasing a damning report on problems in the sector last year.
New housing secretary Michael Gove has indicated he will take a tougher stance on leasehold than his predecessor, saying this week that leaseholders should not pay to fix unsafe buildings.
Joe Douglas, a lessor in north London, is one of hundreds of residents in his development that has seen premiums rise from £350 per year in 2019 to £1,500 in March this year, an increase he calls “daylight robbery”. as has been described.
Mr. Douglas examined the increase and found that other blocks on the same development, which also had fire safety defects, had much lower premium increases, even though some buildings were considered high risk and provided insurance for the same. Company, Zurich
“There is absolutely no point in it. It cannot be justified,” said Mr. Douglas.
He contacted an insurance broker to get a better quote, but was told no broker would provide one because the freeholder already had a policy. “We’re stuck with what we’ve got,” Douglas said.
Upon investigation, he found that the freeholder of his flat, E&J Estates, took out a new policy this year with his existing insurer, Zurich. Unless the policy was already in force, the lessees were not informed of the bid.
Standard practice in the industry is not to quote for a building that already has insurance, meaning that effectively prevents lessees from finding a better deal. Mr. Douglas was told that the broker would need permission from the insurer and the freeholder to obtain a new bid, both of whom had benefited from the policy he had applied for.
Had the freeholder taken a 10 percent commission, his deduction would have received £25,000 for the deal, only from Mr. Douglas’s block and a neighbour.
E&J Estates said that its brokers had approached 16 insurance companies but they could not find a better deal and the company always challenges quotes that do not appear to be in line with the market.
A spokesperson continued: “In a very difficult insurance market, the work involved in securing renewals this year was materially greater and required significant additional resources than in previous years.”
Zurich said it provided insurance for E&J’s entire portfolio and that it had no impact on the way costs were allocated to individual lessees.
A Zurich spokesman said in another development E&J’s premium was increased due to fire damage as well as “previously unknown information about combustible cladding, which changed the risk profile”. He said the commission rate paid to E&J in 2021 was “significantly” reduced compared to the previous year.
Increasing pressure on freeholders is beginning to persuade some to reduce the commission they collect. Karin Beaumont, a leaseholder of a flat in New Providence Wharf in London, found that her freeholder was charging a commission of more than 20 percent.
After a protracted fight, Ballymore, the freeholder, agreed to reduce his fees. Ballymore will charge a “placement fee,” which it says will be based on the amount of work it takes to get a bid, rather than a commission. However, the developer is yet to reveal the details of the new arrangement.
The figures obtained by Ms. Beaumont indicate how lucrative commissions have been for freeholders. Ballymore raised over £114,000 for New Providence Wharf last year.
After a fire at New Providence Wharf earlier this year, Ballymore temporarily reduced its commissions to 6.1 percent of the premium value. The broker who arranged the policy collected around 4.5 percent.
“The broker has to go to the market and arrange for insurance, but it is not clear to me what work Ballymore has to do for that money,” Ms Beaumont said. Ballymore already charges leaseholders separately for administration related to insurance policies through service charges.
Ballymore said it manages its estates “entirely in the interests of the lessees, and not with a view to profit,” and charges commissions at levels below the maximum recommended by the Association of British Insurers.
“It is designed for a non-profit’s revenue, which is only used to help distribute management …
Credit: www.independent.co.uk /