Gove asks FCA to investigate ‘crippling’ insurance costs for leaseholders caught in cladding scandal

This latest intervention follows a series of announcements made by Mr Gove aimed at tackling the crisis and protecting leaseholders.

This includes asking developers to cover the cost of removing unsafe cladding from medium-sized blocks, which the government estimated to be £4bn.

Mr Gove also recently wrote to cladding and insulation manufacturers asking them to partly fund some of the costs.

In his letter to the insurance industry, Mr Gove said that despite the work already under way to remediate cladding safety defects in existing blocks and the continuing decrease in the instances of fire in multiple-occupancy buildings, building insurance premiums have increased dramatically for almost all leaseholders in blocks of flats. 

He insisted that the insurance market is not delivering for leaseholders, and has become limited with more restrictive terms or less coverage, which risks “trapping people with their current provider”.

He added: “The market lacks transparency, and there is not currently useful data to explain the rationale behind the increasing premiums charged by insurers and the conditions associated with the cover. The role and remuneration of brokers, managing agents and freeholders is also unclear.”

In response to Mr Gove’s request for a review, the FCA said it shared his concern about rising costs and the lack of understanding around data.

Nikhil Rathi, chief executive of the FCA, said: “While accurate, risk-based pricing is fundamental to an insurer’s obligations to maintain solvency, there are other elements, such as distribution costs, which also affect price. We therefore want to ensure that products provide fair value, and premiums fairly and accurately reflect risk.”

The Association of British Insurers (ABI) told Inside Housing that it welcomed the request to the FCA.

James Dalton, director general insurance policy at the ABI, said: “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 FCA to identify options to assist leaseholders until the necessary remediation work has been completed.”

The CMA also said it welcomed Mr Gove’s request and said it will engage with the FCA as it progresses this work. 

Mr Gove said he expects a final report to be out within six months after some initial feedback on the issue in three months’ time.