What is a “Distributor” in Relation to your Insurance and What Information Should Your Managing Agent be Providing?
Sinead Campbell from London Flats Insurance looks in more details at the role of a ‘distributor’ in relation to insurance.
For most leaseholders, frustration has been felt at the cost of insurance being added to service charge bills with little or no control over the choice of policy being afforded to the bill payer.
From the 31st December 2023, this will no longer be the case.
The Financial Conduct Authority’s new rules mean that leaseholders will now be considered a stakeholder, and certain information must be shared with them so that more informed choices can be made. As many policies renew in the new year, we thought we could provide a timely reminder of the importance of knowing exactly who you’re dealing with and what you can now expect when arranging your new policy.
The Rule Changes in a Nutshell
Until now, leaseholders have been shut out of the insurance policy purchase completely, other than being asked to pay for the premiums. January 2022, Michael Gove (the Secretary of State for Levelling Up, Housing and Communities) ordered an inquiry into the building’s insurance market due to multiple concerns including a lack of fair value being afforded to leaseholders.
May 2022, the Financial Conduct Authority announced that they would be collecting data on ‘fair value’ for leaseholders. In this review of the market, they found that almost a third of the cost of insurance premiums could be made up of commission and fees (inflated by unscrupulous freeholders agreeing to higher premiums in return for a share of the brokers’ commissions) and that service charge demands were not transparent enough for this to be easily spotted by leaseholders.
In his letter to the FCA in response to the FCA’s findings, Michael Gove said:
“I will take action to ban managing agents, landlords and freeholders from taking commissions and other payments when they take out buildings insurance, replacing such payments with more transparent fees. I will press insurance firms, managing agents, landlords and freeholders to change their practices as a matter of priority.”
Having finalised their research and completed their new rules, the FCA have stated that, as of the 31st December 2023, leaseholders will be considered as stakeholders and must be treated as such during the planning of policy coverage as well as during the transaction itself.
Once the changes come into effect, distributors will also have to provide a detailed disclosure document for any and all stakeholders, including the leaseholders. It must contain the information needed for leaseholders to be given true transparency and the chance to challenge policy choices.
So, who is Your Distributor?
Put simply, a distributor is any firm that arranges an insurance product for you who is not the insurer themselves. This could be a broker or an intermediary (the difference being that and intermediary normally acts as an agent of a particular insurer or insurers while a broker normally acts as an agent of the insurance buyer), or your property managing agent.
London Flats Insurance are an intermediary and underwriter, if your building’s insurance is arranged using our expertise and assistance, then we (and your property managing agent, if you use one) are your distributor(s).
To clarify, we’ve detailed the various chains of distribution that can occur below:
Insurer – intermediary – broker – agent – policyholder – leaseholder
Or
Insurer – intermediary- agent- policyholder- leaseholder
Or
Insurer – intermediary – policyholder – leaseholder
From the 31st of December 2023, if your Managing Agent or Resident Management Company director arranged your building’s insurance through us, you as a leaseholder can expect to be considered in all our processes as an equal stakeholder.
You, as a leaseholder, should also receive the disclosure document mentioned above. We will provide this to whoever arranges the policy with us, and they are expected to pass it on to you. If they don’t, you can contact us for a copy to be provided directly.
What Information Should be Included in the Disclosure?
The rules now state that firms must provide detailed information re the product and their services. It must be compiled and provided to the policy-buyer, with clear instructions that it must also be passed on to all leaseholders.
The details must include:
- A summary of the features of the policy, including main benefits, coverage and exclusions of the policy, duration and insured sum.
- The policy premium- where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level.
- The remuneration which any authorised intermediaries received for arranging the insurance, as well as remuneration they pay to other parties (including unregulated Property Managing Agents and freeholders).
- Information about potential conflicts of interests, such as ownership links between the intermediary and the insurer, and about the insurers with whom the intermediary may place the policy.
- The number of alternative quotes they have obtained (with further details of these to be provided on request) and a brief explanation of why they have proposed or recommended that the policy is in the interests of both the freeholder and leaseholders.
According to the new rules, responsibility for producing the information would be split between the insurer and intermediary:
- The insurer would be responsible for providing the policy summary and pricing information.
- The intermediary would be responsible for producing remuneration, conflicts or interests and placing and history information.
If leaseholders later make their intermediary aware that they have not received the document, the firm must then assist. In terms of timing, the information must be disclosed “as soon as reasonably practicable after the conclusion of the contract”. The FCA defended the decision to provide the information after the point of sale, rather than before in their reasoning below:
“Although we understand leaseholders want to have information as early as possible, we do not think providing information before conclusion would produce any benefits compared to providing it after. Leaseholders are generally only able to challenge insurance costs once they are charged to them by the freeholder. Providing information earlier could increase costs which would be likely to be passed on to leaseholders. We understand that the current market position means more complex insurance contracts are often only concluded shortly before they come into force. Adding work into that process before a contract is concluded would increase the risk of the building going uninsured.”
Summary
So, if your building is insured via us, you can expect full compliance with the new rules and rest assured that we fully support the changes made in the interest of leaseholders. For any renewals or new policies taken out, you will be considered an equal stakeholder throughout, and the disclosure document will be produced as soon as possible once the policy is in place.
For more information, please contact a member of the London Flats Insurance team on 020 7993 3034.