We welcome the news that the Association of British Insurers (ABI) has announced a risk-pooling Fire Safety Reinsurance Facility, with cover starting from 1st April 2024.
This intervention, though long overdue, aims to enhance insurance accessibility for UK buildings affected by Grenfell-style cladding and other fire safety concerns.
Established by (re)insurance broker McGill and Partners with support from the Association of British Insurers (ABI), the Fire Safety Reinsurance Facility has two key intentions:
- To expand capacity for insurers already writing business for affected buildings
- To encourage competition across the market so that more firms will provide cover.
In a statement, the ABI noted that the ultimate solution remains the urgent need for works to take place to make buildings safe and resilient, and the Facility is expected to run for three to five years whilst this happens.
Background
In April 2023, the FCA finally published its report revealing what we all had already known and been calling for action on for some time – that there has been widespread incompetence and unjustifiable remuneration in the buildings’ insurance market.
Following its report, the FCA promised to act, and new measures to support leaseholders in the multi-occupancy buildings insurance market came into force on 31 December. For brokers, this meant being transparent on commission and a near ban on paying commissions to third parties.
At Clear Building Management, we have long argued that a government backed ‘FireRE’ fund, similar to those set-up to provide protection from flood and terrorism risks, would be the best solution, with the Treasury as ultimate underwriter so that mass market insurers can re-enter the market and secure affordable reinsurance for the fire risks.
Fire Safety Reinsurance Facility
We therefore welcome the news that reinsurance support is in place to launch the Fire Safety Reinsurance Facility. This industry intervention will undoubtedly help improve the availability of insurance for certain buildings with combustible cladding and other fire safety issues.
According to the statement from the ABI, the next step will be for the participating insurers – Allianz, Aviva, Axa, RSA and Zurich – to enter higher-risk buildings they currently insure, and which are awaiting remediation works, into the Facility at the point of their annual renewal. These firms have continued to be active in the market and are the top five firms providing insurance cover for commercial and residential buildings.
Clear Building Management’s Director, Ian Hollins, says: “The soaring cost of Building Insurance premiums has silently and persistently punished leaseholders across the UK for far too long. They are blameless victims in this costly crisis, left with unsafe and unsellable properties through no fault of their own.
“While we applaud the launch of the Fire Safety Reinsurance Facility, it alone cannot resolve the issue. Government intervention and faster remediation remain the only sustainable solutions. We join the ABI in urging the Government to consider supporting the Facility to restore confidence in the market or to exempt affected buildings from Insurance Premium Tax, providing immediate relief to leaseholders.”
Combating the “layered” effect
The Grenfell tragedy and Dame Judith Hackitt Review exposed significant construction and fire-risk issues related to some buildings – and insurers have had to consider the heightened risk of an entire building being destroyed and limit the amount of cover provided by individual firms, the ABI said.
Due to the high risks involved, brokers, freeholders and managing agents have previously had to source insurance cover from multiple firms, meaning that several insurers may be involved in covering one building, creating a “layered” effect and adding to costs. The ABI has said it is these buildings which will likely benefit most from the new initiative.
Through a reinsurance panel led by Swiss Re, the Fire Safety Reinsurance Facility will enable insurers to expand the capacity they have for writing insurance for affected buildings and take on new business. Over the course of the following 12 months, the insurers will consider which additional buildings can be entered into the Facility as and when their insurance policies are due for renewal.
Buildings insurance premiums will continue to be based on a variety of risk factors, such as the type and age of the building, previous claims history and other property risks such as storm/flooding or escape of water. External factors such as construction costs and supply shortages will also have an impact.
What does the Fire Safety Reinsurance Facility mean for leaseholders?
Ultimately, the Facility means that one insurer will now be able to insure a whole building, passing the excess risk off to a panel of reinsurance firms. This means leaseholders in buildings affected by Grenfell-style cladding should see their insurance premiums fall from 1 April.
In the longer term, it is hoped that the Facility will reinvigorate competition in the market and encourage other firms to write more business for affected buildings.
Ian concludes: “Whilst we welcome this move and it is something we have been calling for 3 + years, it will only drive real competition and therefore respite for leaseholders when it is available to ALL Insurers. Five is a start, but a timeframe for a wider rollout will demonstrate there is real substance to the new facility and this not just window dressing.”
Clear Building Management clients can be assured that we continue to work with a panel of specialist brokers to take advantage of the best possible rates available for Insurance cover backed by our “no commissions, overriders, markups” policy – we don’t earn by spending your money!
Does your current managing agent have conflicting interests when it comes to insurance or maintenance policies? Do they load invoices with additional, hidden fees? For help with replacing a poor performing managing agent and moving to one that will deliver on its promises please do get in touch.
