Guidance

Insurance Broker Pledge: background and explanation

Updated 8 February 2024

The government agreed with 5 insurance brokers to change their practices to help leaseholders in buildings over 11 metres and/or over 4 storeys in height affected by fire safety issues. The insurance brokers agreed to 3 points which will change their practices the help reduce cost of buildings insurance which is passed onto leaseholders through the service charge. This page provides a plain English background to why the pledge was created, an explanation of each pledge point and the effect each point should have.

Insurance Broker Pledge background

The government is keenly aware that leaseholders who live in buildings which have identified fire safety risks, which need remediation or have been remediated, can have very high buildings insurance premiums which are passed on through their service charge.  

Leaseholders often have little recourse to challenge excessive increase in their service charges and difficulty finding information regarding their building insurance premiums. We have been working with the Financial Conduct Authority (FCA), Competition and Markets Authority (CMA), insurers and insurance brokers on ways we can reduce costs and improve information disclosure for leaseholders.  

The FCA have shown that building insurance premiums have risen by 125%, on average, across the leasehold sector from 2016 to 2021. For leaseholders in buildings with fire safety issues, the average increase has been 187%. There is a small cohort of buildings where price increases have been even more extreme. These buildings tend to have been rejected by the traditional insurance market and are procuring layered insurance policies which involve multiple insurers each providing a fraction of the total cover they require.  

The FCA also found that broker commissions over the last three years had increased by 46% and brokers had passed nearly £80 million to third parties despite poor evidence to justify these payments. In the majority of cases these are shared with property managing agents and freeholders which gives parties an incentive to seek more expensive policies to drive up their own commission taking. From the evidence provided, the FCA decided to make changes to the financial regulations to improve value and access for leaseholders.  

The FCA announced on 29 September 2023, following the conclusion of a consultation on 9 June 2023 that they would be changing their financial rules to improve the rights and disclosure for leaseholders and discourage poor practices (FCA policy statement September 2023). The government is supportive of these changes and hopes they along with other measures announced will combine to reduce costs for leaseholders.   

The government asked insurance brokers to look at ways they could commit to more showcasing more responsible behaviour regarding commissions which would help leaseholders, leading to the pledge from the following brokers: 

• Lockton LLP
• Bridge (FlatGuard a trading style of Bridge Insurance Brokers Limited)
• Brown & Brown Insurance Brokers (UK) Limited
• PIB Group Insurance Brokers and St Giles
• Willis Limited (WTW)
• Affinity Select Insurance Services Limited
• Clarke Williams Ltd
• Williams Blackmore Insurance Brokers Limited
• Residentsline Limited
• Langton London Insurance Brokers Ltd
• Brownhill Insurance Group Ltd
• Peter Hattersley & Partners Ltd t/as PHP Insurance
• Hayes Parsons Insurance Brokers
• Howden (a trading style of Howden Insurance Brokers Ltd and Howden UK Brokers Ltd)
• Reich Insurance Brokers Ltd

The pledge is completely voluntary and the decision of each broker to adopt the pledge has been made independently and without discussion with any other brokers.

Pledge Points Explained

The pledge relates to buildings insurance policies for residential buildings over 11 metres or 4 storeys with fire safety issues that have been made known to the insurance broker.

Point 1

Insurance brokers should not share any of the insurance commission they receive from insurers with those parties who place and/or arrange insurance – usually property managing agents, landlords and freeholders. These parties may place and/or arrange buildings insurance on behalf of leaseholders living in buildings that have identified fire safety risks and need remediation or have been remediated. 

Explanation: 

This means the parties that previously received a share of a commission from an insurance broker when they placed/arranged buildings insurance will no longer receive a share of the insurance broker commission. Property Managing Agents (PMAs), landlords and freeholders will now have an incentive to choose the best building insurance that benefits the leaseholders and building instead of who can provide the largest share of commission. In place of commission sharing, these parties can use fair and transparent charges in the service charge to recover costs for placing and managing insurance for a building. 

Point 2

Insurance brokers will limit any commission they receive from insurers for buildings that are suffering with fire risk/remediation issues to 15% of the overall premium. Insurance brokers will make insurers aware they will only take a maximum of 15% for work on those multi-occupancy building which are affected. This 15% can include a work transfer fee if there is brokerage work undertaken by another party. 

Explanation:

This is the proportion of the premium that brokers can take to compensate them for their work in arranging the insurance. The FCA have found that this amount can be as high as 60% of the cost of the premium paid by leaseholders. Capping the insurance commission amount at 15% means no broker subscribing to this pledge will take more than that amount as the proportion of the total insurance premium. Any reduction in the commission retained by the broker, will be  reflected as a lower cost of the total insurance cost that leaseholders then pay in their service charge. Insurance commission can include a work transfer fee, this is a fee which is paid by one business to another for work they do on their behalf. Any work done on behalf of the broker must be included in the 15%.

Point 3

Insurance brokers will provide building insurance information to leaseholders if requested.  

Explanation:

This will increase the ability for leaseholder to receive a breakdown of costs relating to their insurance. In some circumstances when a leaseholder wants to know the building insurance costs, they can request the information from the property managing agent, landlord or freeholder. If the property managing agent, landlord or freeholder does not provide the information on building insurance then the leaseholder can request the information from the relevant broker and insurer. These changes came into effect on 31 December 2023.