Aamina Zafar examines the impact that a review on insurance risks for residents of buildings with unsafe cladding could have on the profession
Avital review into the “crippling” insurance costs faced by UK residents living in buildings with dangerous cladding could herald a dramatic breakthrough.
Matthew Connell has championed the Financial Conduct Authority’s (FCA) investigation of insurance premiums hikes for residential leaseholders living in buildings with unsafe cladding, because he believes it will finally identify the root causes of risk, which will eventually lead to a comprehensive plan that can solve the current problem.
Dr Connell, director of policy and public affairs at the CII, says this is particularly important as insurers’ concerns about flammable cladding before the Grenfell tragedy in 2017 fell on deaf ears. So, it is now hoped that the report will finally highlight how the failure of regulation to deal with this risk led to the colossal costs that many face today.
He says: “It should be remembered that insurers raised the risks involved with flammable cladding before the tragic Grenfell fire, and the failure of regulation to deal with these risks is one of the key causes of a lack of affordability for insurance for leaseholders today. It is only by understanding the root causes of risk and developing a comprehensive plan across the public and private sector, that this problem can be solved.”
His comments are a response to MP Michael Gove’s request to the FCA to establish why insurance premiums shot up for many customers when work started after the Grenfell tragedy to remove cladding from many sites.
Mr Gove, secretary of state for the Department of Levelling Up, Housing and Communities (DLUHC), penned an urgent letter to the FCA’s chief executive Nikhil Ratho in January, in which he told the watchdog to make practical recommendations for measures that the profession, the government and regulators can use to create widely available and affordable cover.
The review is expected to address two areas of concerns that Mr Gove asked the watchdog to investigate alongside the Competition and Markets Authority. This includes shedding light on the underlying causes of year-on-year price increases and to assess the causes of the marked restriction in coverage available for multiple-occupancy buildings.
In the letter, Mr Gove wrote:
“I have been particularly concerned to hear of cases where insurance premiums have escalated by more than 100% year on year, leaving residents with crippling costs. It is clear to me that the insurance market is failing some leaseholders.”
Dr Connell says that one of the most important points the FCA review will address is to allow policymakers to gather information about the reasons behind increases in the cost of insurance in a systematic and comprehensive way.
It is only by understanding the root causes of risk, and developing a comprehensive plan across the public and private sector, that this problem can be solved
He explains: “We welcome the attention that is being given to the risks faced by leaseholders. This report will allow policymakers to gather information about the reasons behind increases in the cost of insurance in a more systematic and comprehensive way than any organisation could achieve by gathering information on a voluntary basis.”
No other option
The review is also expected to address Mr Gove’s concern that many insurers are not willing to offer new policies to these customers so they have no option but to stick with the policy they have.
In his letter, Mr Gove wrote: “I am also concerned to hear that many insurers seem unwilling to offer new policies, forcing people to shop in a more limited marketplace with more restrictive terms or less coverage; in many cases, trapping people with their current provider.”
This concern has also been raised by the Association of British Insurers (ABI), which confirms it is working to identify options to assist leaseholders until the necessary remediation work has been completed.
James Dalton, director of general insurance policy at the ABI, says: “Insurers recognise and sympathise with the challenges leaseholders are facing in terms of the increased cost of buildings insurance and have been working with the government and the FCA to identify options to assist leaseholders until the necessary remediation work has been completed. The cost of buildings insurance reflects the significant fire risks associated with many multiple-occupancy residential buildings, which go beyond cladding, under a building regulatory system that has been found to be ‘not fit for purpose’.
“We welcome this request to the FCA in the interest of helping resolve the issue for those affected and, alongside our members, will do all we can to assist.”
This follows Dame Judith Hackett’s review into building safety, which highlighted a lot of other issues – particularly problems with building design, product testing and construction methods, especially where cavities allow fire to move almost freely around a building.
Mr Gove told the FCA he expects the watchdog to provide initial feedback within three months and a final report within six months. It is hoped that the strict timescale will help to urgently relieve financial pressure on those affected.
An FCA spokesperson said that although the watchdog cannot currently give a steer on the findings so far, it is on track to respond to the timetable outlined in the DLUHC letter.
Aamina Zafar is a freelance journalist