FCA sets out multi-occupancy leasehold insurance reforms

May 17, 2023

Following on from its report on multi-occupancy buildings insurance, the FCA is proposing new rights and protections for leaseholders to improve the transparency of the multi-occupancy leasehold buildings insurance market.

Under the proposals, set out in the Multi-occupancy building insurance Consultation Paper (CP23/8), leaseholders would be defined, in effect, as customers of buildings insurance. The rule changes would explicitly require insurance firms to act in leaseholders’ best interests, and bar firms from recommending a policy based on commission or remuneration levels. Insurers and brokers would also need to provide more information about insurance policies to leaseholders, including detail of any commission paid.


An associated FCA review on broker remuneration in this line of business, published on the same day, found average per policy insurance broker commission rose by 46% between 2019 and 2022. Firms in the sample paid over £80m of commission away to other parties during that period, usually to the freeholder or the property managing agent. Significant shortcomings by some brokers in applying fair value rules to their remuneration practices, and the impact on those ultimately paying the costs of multi-occupancy buildings insurance, were also identified.

The implications of these draft rules are significant. The FCA expects brokers to immediately stop paying commissions to third parties (including property managing agents and freeholders) where they do not have appropriate justification and evidence for doing so in line with its rules on fair value. Additionally, following this review, the FCA will take appropriate action where firms have significant weaknesses in meeting their regulatory obligations, including on fair value, and will engage the senior managers of firms requiring improvement, so they are fully meeting their obligations.

Firms involved in the sale of multi-occupancy leasehold buildings insurance should review these publications and take action where necessary. Firms wishing to comment on the Consultation Paper must do so by 9th June 2023.

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