BIBA responds to Gove's letter on broker remuneration

Last week, Michael Gove, MP and Secretary of State for Levelling Up, Housing & Communities, issued a letter to the British Insurance Brokers’ Association (BIBA) on the subject of ‘broker remuneration for buildings insurance in multiple-occupancy residential buildings’.

In the letter, Gove highlighted the findings of the FCA’s report on broker commissions for buildings insurance stating that there is “no suggestion” brokers have done sufficient additional work to justify the 64% increase in real-world retained commission seen between 2019 and 2021. He went on to say these practices must attract “forensic scrutiny” from government and regulators, and are “completely unacceptable”.

Gove invited proposals from BIBA’s members outlining, “how they will change their behaviour, individually and as a sector, to be more transparent and more competitive” and requested detailed proposals within one month.

BIBA chief exec Steve White responds

Today, Steve White, CEO of BIBA has responded to the letter, outlining six proposals that the association is working on, on behalf of its members. In his letter, White highlighted that BIBA has been actively working with DLUHC and its members on the insurance problems that stem from high-rise multi-occupancy residential buildings for over three years.

Among the key highlights of the letter, White noted that BIBA’s primary focus has been on solving the cost of insurance for buildings which have significant fire safety defects and that as part of this, brokers have had to undertake a lot of extra work and deliberately calibrate down their earnings, often moving to a fee, to lessen the impact of the overall price increase on leaseholders.

White noted in his letter to Gove that: “Prior to your announcement BIBA had developed a new member pledge (which is included within our manifesto) to the effect that brokers would only make payments to third parties in this sector where they are satisfied that such payments comply with the relevant FCA fair value requirements.”

He also stated that BIBA agrees with the FCA that the remedy to concerns around broker remuneration lies within its members evidencing fair value in a more consistent way, and said the association will work with its members to improve the quality and accuracy of the fair value assessments that they produce -  and invites the FCA to work collaboratively with it to this end.

“We also agree with the FCA’s point around better disclosure of information on insurance arrangements to leaseholders and will work with members to enable better disclosure of information to leaseholders via the freeholder,” he said. “Legislation from DLUHC to mandate that freeholders make better disclosure would be welcomed by our members, if this remedy is to have any success.

“We note that the FCA report confirms that most brokers provide appropriate information about the policy and the nature of their remuneration to their customers (freeholders) today.”

White drew attention to the “linked issue” of affordable and adequate professional indemnity insurance (PII) for professionals looking to help with remediation of tall buildings that have fire safety defects. He added that BIBA has repeatedly flagged with DLUHC that the lack of PII is acting as a “serious brake on the pace of remediation and excludes many smaller firms from considering tendering for work that is funded by the BSF and mid-rise schemes”.

BIBA’s six proposals:

In conclusion, BIBA offered its thoughts on a range of solutions to solve the problem and asked for the government’s support with implementation.

“This matters not simply because it is intolerable that many leaseholders are still living in unsafe buildings,” he said, “but also, we know that once a building is remediated our members can negotiate the buildings premiums down to a significantly lower level.”

These proposals include:

1. Implementing the reinsurance pooling arrangement with the ABI that aims to provide an answer to affordability and risk capacity for impaired multi-occupancy residential buildings.
2. Working with members to implement the pledge in its manifesto around fair value.
3. Issuing guidance to BIBA members on good practice in the construction of fair value assessments.
4. Ensuring members follow the new common code for the collection of data relative to multi-occupancy buildings.
5. Working constructively with the FCA on its new consultation to improve transparency and disclosure to leaseholders on their insurance arrangements.
6. Continuing its discussions with government on how to solve the issue of the lack of affordable professional indemnity insurance to accelerate the remediation effort.

In his letter – which copied in Andrew Griffith MP, Economic Secretary to the Treasury; Lee Rowley MP, Building Safety Minister; Nikhil Rathi, chief executive FCA; and Sheldon Mills, executive director FCA, White asked Gove to find time in his diary within the month to meet and discuss the proposals in further detail.

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