Introduction
In recent years, leaseholders have faced significant financial burdens due to hidden insurance commissions charged by landlords and property managing agents. These commissions, often undisclosed, have inflated insurance premiums, leading to widespread discontent among leaseholders. The Financial Conduct Authority (FCA) has introduced reforms to address these issues, and a potential class action case is on the horizon. This blog explores the background, implications, and potential outcomes of this class action case.
Background
Hidden Insurance Commissions
Millions of leaseholders have been unknowingly paying inflated insurance premiums due to hidden commissions charged by landlords and property managing agents. The FCA estimated that these hidden commissions averaged around 30% of the premium, significantly increasing the overall cost for leaseholders. In some cases, commissions were as high as 62%, with most brokers agreeing to commissions exceeding 30%.
Legal and Regulatory Developments
The FCA has been actively working to reform the leasehold buildings insurance market. Key measures include banning the recommendation of insurance policies based on commission levels and ensuring that insurance policies provide fair value to leaseholders. From January 2024, insurance firms will be required to act in the best interests of leaseholders and provide detailed information about policy pricing and commissions.
The Department for Levelling Up, Housing and Communities (DLUHC) has also announced plans to ban the payment or sharing of insurance commissions with property managing agents, landlords, and freeholders.
fca.org.uk/news/press-releases
The Class Action Case
Basis for the Claim
The proposed class action, spearheaded by Velitor, aims to reclaim hidden commissions, any resultant increases in Insurance Premium Tax (IPT), and interest going back at least six years. Velitor argues that charging secret commissions on insurance premiums is unlawful. The claim is open to any leaseholder who owns, or has owned since 1997, a leasehold flat in England and Wales.
Potential Compensation
Leaseholders could receive between £1,500 and £3,500 per flat, including IPT on the commission and compound interest. This compensation could provide significant financial relief to affected leaseholders who have been overcharged for years.
Legal and Financial Implications
The class action is currently the only way for leaseholders who were misled about secret commissions before the law change to recover their money. However, claimants will need to agree to pay 40% of their damages to Velitor, which will be shared with the funder.
Broader Implications
Increased Transparency and Fairness
The FCA’s reforms aim to increase transparency and ensure that leaseholders receive fair value from their insurance policies. Insurers and brokers will be required to provide more information about insurance policies, including details of any commissions paid. This increased transparency is expected to lead to fairer pricing and better outcomes for leaseholders.
fca.org.uk/news/press-releases/fca-sets-out-multi-occupancy-leasehold-insurance-reforms
Impact on Insurance Costs
While the crackdown on commissions is a significant step forward, it is not a panacea for all the issues facing leaseholders. Insurance costs for leasehold properties, particularly in mid and high-rise buildings, have soared since the Grenfell tragedy. The FCA’s investigation revealed wider issues in the insurance market that have led to poor outcomes for leaseholders. Therefore, while the reforms and class action may address the issue of hidden commissions, broader efforts are needed to tackle the overall cost of insurance for leaseholders.
Conclusion
The forthcoming class action case represents a significant opportunity for leaseholders to reclaim hidden insurance commissions charged by landlords and property managing agents. The FCA’s reforms and the DLUHC’s planned ban on commission payments are crucial steps towards increasing transparency and fairness in the leasehold buildings insurance market. However, addressing the broader issues of rising insurance costs will require continued regulatory oversight and comprehensive market reforms. Leaseholders should stay informed about these developments and consider participating in the class action to seek compensation for past overcharges.
—
This blog aims to provide a comprehensive overview of the current situation regarding hidden insurance commissions and the potential class action case. By understanding the background, legal basis, and broader implications, leaseholders can make informed decisions and advocate for fairer treatment in the insurance market.
