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UK Insurance Brokers Take Bold Steps to Cut Costs for Leaseholders: Commission-Sharing Pledge and Fee Caps Announced

UK insurance brokers are supporting efforts to reduce costs for leaseholders by pledging to stop sharing commissions with landlords and capping their fees. Five major broking groups—Willis Towers Watson, Lockton, Brown & Brown, Bridge, and PIB—have agreed to end the practice of sharing commissions on buildings over 11 meters in height with known fire-safety issues. The move aims to significantly decrease costs for leaseholders in such buildings. Leaseholders typically contribute to insurance policies without control over insurer selection or intermediary costs, often shared with landlords or managing agents.

The government, represented by Lee Rowley, the Minister for Building Safety, applauded the brokers for their commitment to lowering premiums and urged further industry-wide actions. The decision follows a recent report by the UK financial regulator, which deemed intermediary fees, reaching up to 62% of premiums, as disproportionate. Campaigners pushing for insurance transparency have focused on such fees as a major contributor to high insurance costs, especially for those dealing with fire-safety issues. A London tribunal ruling in December criticized excessive commission payments, stating that residents of one block of flats had been overcharged by £1.6 million.

In January, the government pledged to ban commissions for managing agents, landlords, and freeholders on buildings insurance, expected to be part of a leasehold reform bill. This bill, set to be unveiled in the November 7 King's Speech, will also abolish leaseholds for new-build houses, cap ground rents at a nominal rate, extend leases to 990 years, and remove the two-year residency requirement for leaseholders to request extensions. Additionally, leaseholders will gain the right to manage their property by hiring or firing property managers.

The Financial Conduct Authority (FCA) has advised insurance brokers to cease paying commissions to third parties without proper justification, aligning with fair value rules. The British Insurance Brokers' Association (BIBA) has collaborated with the government and its members on the pledge, emphasizing its importance for multi-occupancy properties with fire safety concerns. In broader reforms next year, building insurance firms will be mandated to act in the best interests of leaseholders and provide transparent information about policies, including commissions.

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