FCA contemplated commission level ban in flats insurance review

The executive director for consumers and competition at the FCA has also confirmed a further investigation into excessive commission levels.

The residential buildings insurance review was prompted by then Secretary of State Michael Gove writing to the FCA in January saying he was “extremely concerned” about the pressure leaseholders face from rapidly escalating insurance premiums on blocks of flats following the Grenfell Tower tragedy.

Published last month the review found evidence of brokers charging up to 62% commission.

The current Secretary of State for Levelling Up, Housing & Communities, Simon Clarke, has since written to Steve White, CEO of the British Insurance Brokers’ Association, slamming “amoral” flats insurance commission and demanding change.

Clarke took particular aim at the average absolute value of commissions more than tripling for brokers between 2016 and 2021.

Concern

Questioned at a press conference yesterday on whether the regulator was also looking at commission levels more widely in the general insurance market Mills noted the watchdog had unearthed a range of rates in the residential buildings review.

“The vast majority of those rates were in line with wider commission rates for other types of products and services, so 30% or less,” he observed.

But added: “There were a significant minority which were above that and were of concern for us.”

While the FCA’s report with recommendations and potential remedies to reform the multi-occupancy buildings insurance market stopped short of detailing a ban on any level of commission, Mills flagged that the authority was undertaking “a review of those brokers who charge the highest commissions in this market”.

Continuing: “That review will be focused on considering where the greatest risk of excessive commission levels are being charged, and we will be publishing the outcomes of this review in the first half of next year.”

The FCA boss also underlined the regulator’s fair value expectations for brokers and insurers.

“This goes into our new Consumer Duty which asks all firms who are providing products and services through the chain to retail customers to really think about the value of the various products and various charging mechanisms that they have.

“That should in and of itself also have a focus on some of those commission levels,” Mills explained.

AGM

The Consumer Duty – the FCA revealed a 12-month implementation deadline this July – had also been highlighted by interim chair Richard Lloyd as a “game changer” at the FCA’s annual public meeting held earlier in the day.

“We’re breaking new ground by introducing a new Consumer Duty, which will set higher standards and require firms to focus on meeting their customers’ needs in everything they do,” Lloyd claimed.

“We think this will be a real game changer for the level of protection consumers receive in the UK. It should mean people receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it. This is hardly controversial but, too often, still doesn’t happen.”

Adding: “For firms, greater clarity about our expectations, including for products not yet on the market, will provide more certainty. Fewer detailed rule changes should bring down costs, while we’ll be able to act more quickly and assertively where we spot practices that don’t meet our expectations.”

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