What do Gove's insurance commission proposals mean for the property sector?

The commission is often at least 30 per cent but has been known to range from less than 10 per cent to 62 per cent of the gross premium. The FCA explains that "while in some cases customers may be aware of the amount of commission being paid, there is no general level of transparency or standard reporting regarding levels of commission". 

Any commission received by a broker might then be shared with the property owner or the property managing agent as remuneration "for the support they provide to procure insurance and then to deliver elements of post-sale service".

Interestingly, the report explains that the commission rate is often a "secondary factor or irrelevant in most freeholders’ choice of insurer, although it may play a role in their choice of broker, among other things". 

The report concludes with a number of recommendations for the government. It suggests that it consider ways that leaseholders could be made parties to insurance contracts or for leaseholders to challenge insurance costs in a way that is straightforward and easily accessible.

The FCA also states that they will review and publish details of those brokers who charge the highest commissions and consider whether commission to landlords should continue in cases where they do not provide any additional benefit to tenants.

Changing the law will do little to convince those who have no interest in following it.

It regards that a cap or limit on remuneration would not be justified although this would be monitored. Finally, it suggests that government considers imposing an enhanced legal requirement on freeholders and property managing agents to provide minimum information on the insurance policy to leaseholders.

Gove has welcomed these recommendations, promising to ban managing agents, landlords and freeholders from taking commissions and other payments when they take out buildings insurance, replacing such payments with more transparent fees.

He states that he will "arm leaseholders with more information to enable them to better scrutinise their insurance costs", while not having to bear unnecessary legal fees when taking action against unscrupulous landlords.

These are ambitious plans indeed, but only mark the first step for a minister who has vowed to fundamentally reform English property law and remove leasehold interests entirely.

Existing rules

For those of us dealing with the underlying legal transactions, these are interesting recommendations, although many of them already exist in some form.

Perhaps stronger enforcement and greater exposure might be more effective tools than changing the law as, for residential tenants, there is already a legal right to request information about the insurance providers from their landlord.