Freeholders of fire-risk flats are facing demands from regulators to check hidden commissions paid after homeowners saw their premiums rise by 400 per cent.
Liberal Democrats have said a dramatic increase in insurance costs “rubs the salt in the wounds” for hundreds of thousands of residents trapped in potentially unsafe homes they cannot sell.
The party, along with campaign group Leasehold Knowledge Partnership (LKP), is calling on the competition watchdog to take steps to ban commissions paid by insurance firms to freeholders and the block’s management agents. They argue that the payment gives freeholders a financial incentive to negotiate higher premiums and worse insurance cover for lessees.
Residents facing thousands of pounds to fix defects exposed in the wake of the Grenfell Tower tragedy have seen insurance bills rocket. The increase, while distributing a payday to freeholders, managing agents and brokers, adds to further financial woes on homeowners, who deduct all insurance premiums they negotiate but must pay leaseholders. .
Freeholders typically take a 10 percent deductible for any work done and their share of building insurance may be even higher. Freeholders have no legal obligation to tell leaseholders how much commission they receive, which can be up to 80 percent. Rates of 20 percent are normal.
Lib Dems has told the Competition and Markets Authority (CMA) that lessees in unsecured blocks are “already standing on the edge of a cliff”.
“So to allow unfair practices that subject many leaseholders to huge hidden mark-ups in their already punishable high premiums is to rub salt into the wounds.
“There is a need for immediate action to protect the already vulnerable section of the society.”
The CMA said it could not comment on any possible investigations, but the watchdog has taken a more strict stance on leasehold assets, releasing a damning report on problems in the sector last year.
Joe Douglas, a lessor in north London, is one of hundreds of residents in his development that has seen premiums rise from £350 per year in 2019 to £1,500 in March this year, an increase he calls “daylight robbery”. as has been described.
Mr. Douglas investigated the increase and found that other blocks on the same development, which also had fire safety defects, had much lower premium increases, even though some buildings were considered high risk and the insurance provided by them. Was the same company, Zurich
“There is absolutely no point in it. It cannot be justified,” said Mr. Douglas.
He contacted an insurance broker to get a better quote, but was told no broker would provide one because the freeholder already had a policy. “We’re stuck with what we’ve got,” Douglas said.
Upon investigation, he found that the freeholder of his flat, E&J Estates, took out a new policy this year with his existing insurer Zurich, without informing the lessees of the bid unless the policy was already in force. .
Standard practice in the industry is not to quote for a building that already has insurance, meaning that effectively prevents lessees from finding a better deal. Mr. Douglas was told that the broker would need permission from the insurer and the freeholder to obtain a new bid, both of whom had benefited from the policy he had applied for.
Had the freeholder taken a 10 percent commission, his deduction would have been £25,000 for the deal, only from Mr. Douglas’s block and a neighbour.
E&J Estates did not respond to requests for comment. Zurich said it provided insurance for E&J’s entire portfolio and that it had no impact on the way costs were allocated to individual lessees.
A Zurich spokesman said in another development E&J’s premium was increased due to fire damage as well as “previously unknown information about combustible cladding, which changed the risk profile”. He said the commission rate paid to E&J in 2021 was “significantly” reduced compared to the previous year.
Increasing pressure on freeholders is beginning to persuade some to reduce the commission they collect. Karin Beaumont, a leaseholder of a flat in New Providence Wharf in London, found that her freeholder was charging a commission of more than 20 percent.
After a protracted fight, Ballymore, the freeholder, agreed to reduce his fees. Ballymore will charge a “placement fee,” which it says will be based on the amount of work it takes to get a bid, rather than a commission. However, the developer is yet to reveal the details of the new arrangement.
The figures obtained by Ms. Beaumont indicate how lucrative commissions have been for freeholders. Ballymore raised over £114,000 for New Providence Wharf last year.
After a fire at New Providence Wharf earlier this year, Ballymore temporarily reduced its commissions to 4.5 percent of the premium value. The broker who arranged the policy collected around 4 percent.
“The broker has to go to the market and arrange for insurance, but it is not clear to me what work Ballymore has to do for that money,” Ms Beaumont said. Ballymore already charges leaseholders separately for administration related to insurance policies through service charges.
Ballymore stated that he manages his estates “entirely in the interests of the lessees, and not with a view to profit”, and takes commissions at levels below the maximum recommended by the Association of British Insurers.
“This is a non-profit designed for revenue, which is only used to help deliver the management services across our portfolio,” said a Ballymore spokesperson.
“Nevertheless, we continually look for ways to reduce insurance costs. This includes all Ballymore properties moving to a fee-based system in 2021/22, which is projected to further reduce costs as insurance premiums rise. Fees will not fluctuate.
Ballymore said it had helped several residents’ associations find their own quotes but none was able to find a better deal.
LKP wants Financial Conduct Authority to change its rules…
Credit: www.independent.co.uk /