Financial Conduct Authority (FCA) expectations of regulated firms when arranging and providing fair value buildings insurance for leasehold apartment buildings.
In recent years, the cost of buildings insurance has increased significantly for some apartment buildings, especially if the building’s exterior is clad with potentially combustible materials. This has led to a rise in charges for some leaseholders.
Fair value and buildings insurance
Insurers and insurance intermediaries should consider the value of these insurance products for customers (including any policyholders who could bring a claim under the policy).
This will include consideration of whether all relevant aspects of the policy – such as the total price, coverage and the effects of distribution arrangements (and associated remuneration) – would mean the product offers fair value.
FCA expectations of regulated firms
Where intermediaries propose a policy to a property managing agent as their customer, they will need to consider any of the property managing agent’s wider obligations to leaseholders, which are likely to inform the assessment of their demands and needs.
Depending on the contract of insurance and the circumstances, firms may owe some obligations directly to leaseholders. For example, if a leaseholder has direct rights to bring a claim under the policy, firms would need to consider whether they are arranging insurance that is consistent with their obligation to act honestly fairly and professionally, in the best interests of the leaseholders as well as the property owner (the ‘customer’s best interests’ rule in ICOBS 2.5.-1R).
Firms arranging buildings insurance (including property managing agents)
There are many different arrangements through which buildings insurance can be taken out by a property owner or property managing agent.
The FCA expect firms they regulate to make sure they are meeting all applicable rules and take account of any wider legal obligations (eg under landlord and tenant legislation) that are relevant to taking out this insurance cover.
This includes property managing agents that are directly regulated by them, or those that act as appointed representatives of FCA-regulated firms, in relation to arranging buildings insurance (and any other regulated activities they provide).
Regulated insurance intermediaries who receive remuneration for their work distributing buildings insurance policies, must make sure the remuneration is consistent with the customer’s best interests rule.
Please note, this is not an exhaustive description of what firms need to consider. These are some important elements firms need to consider as part of their overall approach.