YOUR COMPLIANCE MATTERS – FCA ‘Dear CEO’ letters - Insurance cost for multi– occupancy buildings
- By MICHAEL HANSON
- •
- 02 Feb, 2022
YOUR COMPLIANCE MATTERS – FCA ‘Dear CEO’ letters - Insurance cost for multi– occupancy buildings
Relevance: All Firms.
Action required: Review your approach to such risks and review your distribution arrangements.
The FCA published two ‘Dear CEO’ letters connected to the above issue, on 28th January 2022, highlighting the difficulties being faced by both Property Owners, and their Leasehold Tenants, as a result of rising property insurance prices for multi-occupancy buildings.
The letters are available on the FCA website:
The FCA is pointing out the requirement to ensure that products provide ‘Fair Value’ to the customer. In particular, they want intermediaries and insurers to look at the total costs absorbed in the distribution chain to ensure that commissions taken do not adversely affect the value of the ultimate product.
The newsletter highlights the obvious issue that if premiums increase, commissions (if they are a fixed percentage of premium) will increase, without the intermediary or any party in the chain actually doing any more work than they previously had. The FCA expects firms to look at this issue and ensure that their income bears a reasonable relationship to the work that they are doing for the customer (in this case, including the leaseholders).
The newsletters also remind intermediaries of the need to get any re-broking activity underway as early as possible, in order to ensure that the market can react properly and provide the best terms to the client concerned.
As a further reminder, all firms have to disclose their revenue for handling a case (this includes commission, fees, premium finance, and any other source of income) if this is requested by the Policyholder.
Further FCA Activity
It does look like the FCA will be asking firms to complete a questionnaire, detailing the processes that they undertake and remuneration, throughout the chain (including any insurance broker or property managing agent which takes any commission from the premium).
We would recommend that you review all of your significant property-owning cases in order to identify whether there are any issues which need to be addressed, in response to the FCA concerns.
If you need any further guidance, please call us and we will be happy to provide more help.
