Freeholder Building Insurance on Block of Flats - Possible to Get Direct Quote?

marions41

Hi

I am a leaseholder (flat owner) in a block of flats.

The block is managed by a management company who arrange our building insurance via a broker.

This results in us paying between 30% and 60% on top of the policy to the broker, who then very likely kicks some back to the management company we have in place.

Please note the following from an FCA report on building insurance:

• Leaseholders often have limited visibility on why a particular insurance policy may be selected over others, as well as on the remuneration paid to parties in the distribution chain. They also have few routes to challenge the insurance costs passed on to them by freeholders. This limits their ability to put pressure on the different elements of the insurance cost (eg insurance premium, commission to brokers and freeholders/property managing agents).

• The fact that some freeholders and property managing agents receive a share of the insurance commission could be giving them an incentive to consider the impact on their own remuneration when choosing an insurance policy

And:

1.21 Brokers arranging multi-occupancy buildings insurance for the owners and managers of these buildings can be remunerated in a variety of ways, including through fees and work transfer payments. However, based on our analysis and the discussions in our workshops, this remains primarily a commission-driven remuneration model, especially when insuring individual buildings rather than portfolios of buildings.

1.22 The commission rate paid by the insurer to the broker varies significantly. In most cases within the observations we received and used for our analysis it is at least 30% (they range from <10% to 62%). The level of some commissions in this market are an area of significant concern.

1.23 The broker often shares the commission with the freeholder or the property managing agent. Brokers in our workshops explained they share their commissions so that freeholders and property managing agents can be remunerated for the support they provide to procure insurance and then to deliver elements of post-sales service. For example, to provide necessary evidence on the buildings’ features, instruct survey work and administrative services. Property managing agents, most of whom are not regulated by the FCA, are usually remunerated by the leaseholder for the activities they perform through a service charge. Freeholders often play a more limited role in obtaining insurance. So, it is often not clear why it is appropriate or necessary for property managing agents or freeholders to receive additional remuneration via broker commissions. We are very concerned that this practice does not represent value ultimately for the leaseholder

So... to my question (sorry!): 

I am in touch with the director of my building (another flat owner) who is open to changing management company or even using our ¨right to manage¨ the building ourselves. 

The problem is, our existing insurer, AXA, advised that they only offer this building insurance for blocks of flats via a broker. Aviva said the same.

Has anybody out there had any success at all in getting a direct quote for building insurance for their block of flats? If so, please, please could you share the name of the insurer.

We currently have no idea what commission is being paid to the broker, and whether managing agent receives kick back.

In any case it is very annoying that the relevant insurers seem to be forcing freeholders to use brokers, in which case how is it possible to get like for like quotes and ensure we are not being completely ripped off?

Does anyone know if Martin Lewis has ever raised / examined this issue?

I have a link to an article that states 60% of leaseholders in blocks of flats in London are overpaying horrendously for their building insurance premiums... cannot post due to being new user.

Any help on this would be very welcome, thank you.

DullGreyGuy

The commission to the broker covers all aspects of the cost of sale and the work that the broker does. If the brokerage is 30% that wouldnt mean that going to a direct insurer would be 30% cheaper as the insurer now has to cover the cost of advertising, staff handling enquiries, lead generation etc. If you look at mass market consumer insurance on the likes of Confused.com it's often an intermediary (broker or otherwise) that comes up cheapest not a direct insurer. 

For larger blocks it's common for a survey to be required as part of the new business quoting, a broker arranges this and presents it to all the insurers on the panel. If you went to 5 direct insurers that'd be 5 surveys that would be done all adding additional cost because at least 4 of those its going to be wasted monies. 

I'm not aware of any direct to market commercial property insurers out there. There are some specialist intermediaries that look and act like they are an insurer but their lack of PRA regulation makes it clear they are an intermediary. 

marions41

DullGreyGuy said:

The commission to the broker covers all aspects of the cost of sale and the work that the broker does. If the brokerage is 30% that wouldnt mean that going to a direct insurer would be 30% cheaper as the insurer now has to cover the cost of advertising, staff handling enquiries, lead generation etc. If you look at mass market consumer insurance on the likes of Confused.com it's often an intermediary (broker or otherwise) that comes up cheapest not a direct insurer. 

For larger blocks it's common for a survey to be required as part of the new business quoting, a broker arranges this and presents it to all the insurers on the panel. If you went to 5 direct insurers that'd be 5 surveys that would be done all adding additional cost because at least 4 of those its going to be wasted monies. 

I'm not aware of any direct to market commercial property insurers out there. There are some specialist intermediaries that look and act like they are an insurer but their lack of PRA regulation makes it clear they are an intermediary. 

Thanks, so would there be any benefit in getting quotes from different brokers?

There's a huge difference between say 30% on top with one broker versus 60% with another, and whilst we likely will not be able to determine what % our existing broker is on, we could just compare overall quote cost between brokers.

Anyone with info on this, would really appreciate it

DullGreyGuy

marions41 said:

DullGreyGuy said:

The commission to the broker covers all aspects of the cost of sale and the work that the broker does. If the brokerage is 30% that wouldnt mean that going to a direct insurer would be 30% cheaper as the insurer now has to cover the cost of advertising, staff handling enquiries, lead generation etc. If you look at mass market consumer insurance on the likes of Confused.com it's often an intermediary (broker or otherwise) that comes up cheapest not a direct insurer. 

For larger blocks it's common for a survey to be required as part of the new business quoting, a broker arranges this and presents it to all the insurers on the panel. If you went to 5 direct insurers that'd be 5 surveys that would be done all adding additional cost because at least 4 of those its going to be wasted monies. 

I'm not aware of any direct to market commercial property insurers out there. There are some specialist intermediaries that look and act like they are an insurer but their lack of PRA regulation makes it clear they are an intermediary. 

Thanks, so would there be any benefit in getting quotes from different brokers?

There's a huge difference between say 30% on top with one broker versus 60% with another, and whilst we likely will not be able to determine what % our existing broker is on, we could just compare overall quote cost between brokers.

Anyone with info on this, would really appreciate it

Yes it is, not all brokers work with all potential suppliers so worth getting other quotes.  As an insurer, not a broker, we charge £x, the broker takes a percentage of that, doesn't add a percentage on top.

You can simply ask them what their commission is, they are obliged to say but does it really matter? Would you be happier paying £1,000 with the broker taking 10% than paying £800 but the broker taking 25%? There are many reasons why brokerage varies between brokers but surely the ultimate cost to you matters rather than if they are doing more work for the insurer so get a higher commission?

eddddy

marions41 said:

I am in touch with the director of my building (another flat owner) who is open to changing management company or even using our ¨right to manage¨ the building ourselves. 

....
We currently have no idea what commission is being paid to the broker, and whether managing agent receives kick back.

The above is a bit hard to follow.  Have you already collectively exercised your "Right To Manage" the building?

If so, presumably the managing agent is employed by you (collectively).

Does the contract you have with the managing agent allow them to earn a commission for arranging your insurance, and not tell you how much the commission is?

If you decide to employ a different managing agent, perhaps you should aim to make it a condition of the contract that they must disclose all commission they earn as a result of managing your property (e.g. kick-backs from insurers, kick-backs from tradespeople, kick-backs from contractors, etc.). 

And to prevent a conflict of interest, maybe insist that any commission they earn must go into the service charge fund - so they simply charge fees (which are added to the service charge) for the work they do.