The Government has issued a consultation on introducing permitted insurance fees for landlords, freeholders and property managing agents. In this article we explore the arrangements between the various parties involved in taking out buildings insurance on multi-occupied properties, and look at the Financial Conduct Authority (FCA) findings on how much commission is typically being paid.
Placekeeper does not take any commission payments for placing insurance, as we regard arranging insurance cover as forming a basic part of the managing agent’s role payable under the management fee. However, we are aware that it has been a common source of income for many agents for many years.
Key parties
Typically there will be up to four parties involved:
- Freeholder or landlord – owns the property – the policyholder
- Managing agent – arranges cover and collection of the premium through the service charge
- Insurance broker – identifies products that meet the needs of the property
- Insurer – offers insurance covering the risk
- Leaseholder – pays the premium through the service charge
Broker renumeration
When the Financial Conduct Authority (FCA) looked at this issue in 2023 (Multi-occupancy buildings insurance – broker remuneration (April 2023)), it found that:
- based on an average gross policy of £11,625, the average broker renumeration was £3,010
- rates of commission of 30% or higher for 58% of the observations it looked at
- commission levels of 40 to 49% for 23% of observations
- commission of over 50% for 2% of observations
These were the gross commission figures received by brokers, including any elements paid onto the freeholder or property managing agent.
Managing agent renumeration
The relationship between some agents and brokers is that the broker will then in turn pay part of the commission to the manging agent or freeholder.
The data the FCA analysed showed:
- 8 firms paying over half of their commission to a third party, such as the managing agent or freeholder.
- Property managing agents typically received up to 50% of the commission.
The activities commonly mentioned as justification for the insurance fee included collating risk information, arranging building surveys, involvement in the claims process, collecting premiums, liaising with broker/freeholder on policy terms/renewals and liaising with leaseholders.
Next steps
The FCA found evidence of high commission rates and poor practice which were not consistent with providing fair value to the customer. The Government is now consulting on proposals to prevent landlords, freeholders and property managing agents from imposing on leaseholders opaque and excessive charges related to building insurance, often in the form of these commissions. Instead, they would only be able to charge a fair and transparent permitted insurance fee to leaseholders.
The consultation runs until 24 February 2024.
Trevor Adey, Placekeeper Management Limited
