A review of the “crippling” insurance costs faced by residents in some buildings with unsafe cladding is to be undertaken by a watchdog, at the request of the government.
Michael Gove, the communities minister, has asked the Financial Conduct Authority (FCA) to establish within six months why insurance premiums have shot up for many customers while work started after the Grenfell tragedy to remove cladding from many sites.
Despite investment and work to identify and tackle cladding safety defects in existing blocks, and a continuing decrease in the instances of fire in multiple-occupancy buildings, he said building insurance premiums had increased dramatically for almost all leaseholders in blocks of flats.
“I am also concerned to hear that many insurers seem unwilling to offer new policies, forcing people to shop in a more limited marketplace with more restrictive terms or less coverage; in many cases, trapping people with their current provider,” Gove wrote in a letter to the Financial Conduct Authority’s chief executive, Nikhil Rathi.
The minister said he shared the view of many policyholders who, “understandably”, do not view the market as offering accessibly priced, widely available insurance.
“The market lacks transparency and there is not currently useful data to explain the rationale behind the increasing premiums charged by insurers and the conditions associated with the cover. The role and remuneration of brokers, managing agents and freeholders is also unclear.”
The FCA said it had issued two letters on Friday, one to the CEOs of all the insurance firms and the other to insurance intermediaries. “Although insurance premiums are just one aspect of the rising costs faced by residential leaseholders in the wake of the Grenfell tragedy, we want to ensure products provide fair value and premiums fairly and accurately reflect risk,” the FCA said in a statement.
It said that its letters outlined the work it was doing, which included examining firms’ approaches to pricing for multi-occupancy buildings and whether elements unrelated to risk, such as commissions, were increasing costs.
Firms were also reminded of their obligations under FCA rules, including to consider the costs borne by leaseholders, when determining whether a product was fair value.
It added: “We are asking firms to consider what actions they can take to help leaseholders, whether individually or by identifying collective solutions as an industry.”
A government review into building regulations after the Grenfell Tower fire – which killed 72 people and injured more than 70 – concluded that indifference and ignorance led to a “race to the bottom” in building safety practices, with cost prioritised over safety.
A national ban was introduced on using combustible cladding on new buildings, and sprinklers became mandatory on new builds of more than 11 metres.
The full cost of fire safety work on all affected blocks has been estimated at about £15bn. By June last year the government had committed an estimated £5bn through the Building Safety Fund to remove flammable cladding on high-rise buildings.
But under the leasehold system in England and Wales the cost is often borne by individual flat owners, some of whom have been struggling with spiralling insurance costs, service charges, and high fees for 24-hour “waking watch” fire patrols.
Last week, Gove threatened a UK trading ban on manufacturers of combustible cladding and insulation unless they paid to fix dangerous housing, giving companies a March deadline to agree a settlement.
In a letter to the industry, he highlighted more than £700m in profits made over the past four years by the three firms most closely associated with the Grenfell disaster – likely to mean Arconic, Celotex and Kingspan, which made the combustible cladding panels and insulation foam on Grenfell Tower.
Earlier this year, Britain’s biggest housebuilding companies told the government they must not be the only ones to pay the potential £4bn cost of fixing fire safety problems in blocks of flats.
The Association of British Insurers (ABI) said its members recognised and sympathised with challenges faced by leaseholders and welcomed Gove’s request to the FCA.
James Dalton, director of general insurance policy at the ABI, said: “The cost of buildings insurance reflects the significant fire risks associated with many multiple-occupancy residential buildings, which go beyond cladding under a building control system that has been found to be ‘not fit for purpose’.”
