UK regulator plans insurance 'risk pool' for tower blocks

The Financial Conduct Authority (FCA) plans to change the rules on insuring some high-rise buildings in the UK, after a tower block fire in London five years ago led to the deaths of 72 people.

The regulator wants to create “cross-industry pools” for buildings affected by flammable cladding or other material fire safety risks, which would prevent a single insurer from covering a high-rise property and would spread the risk across multiple insurers instead.

The FCA also wants to improve transparency around insurance pricing for leaseholders; make it easier for them to challenge high insurance costs; and ensure that leaseholders are considered ‘customers’ of a buildings insurance policy.

The package of measures are a response to the Grenfell Tower fire in June 2017. The residential apartment block in West London was covered in flammable cladding, which resulted in an electrical fire spreading throughout the building. 72 people were killed and more than 70 others were injured in the deadliest structural fire in the UK since 1988.

People 'living in buildings with known fire safety issues’

Since the fire, the FCA says, there has been reduced insurance for multi-occupancy buildings prompted by lower appetite among insurers to accept new business. This has caused the average price of insurance premiums to increase from £6,800 in 2016 to £15,300 in 2021.

Many leaseholders have been living in apartment blocks clad with similar materials to Grenfell, unable to sell and burdened with higher insurance premiums. Where the cost of removing cladding has not been met by developers or landlords, some residents have also had to pay for fire wardens. As the cost-of-living crisis begins to take hold, such astronomical costs are becoming untenable.

Sheldon Mills, Executive Director of Consumers and Competition for the FCA, says: “Since the Grenfell tragedy, hundreds of thousands of leaseholders have had to endure the difficulties of living in buildings with known fire safety issues and these problems have been made worse by increases in the cost of their insurance.

“We will consult on measures to improve transparency for leaseholders about the price of their insurance and how leaseholders can be given greater protection. We expect the insurance industry to work quickly with us and government to develop solutions to this issue, including developing pooling arrangements and reducing commission that will make affordable insurance cover more widely available.”

ABI welcomes proposal to ‘risk share’ building insurance

James Dalton, Director of General Insurance Policy for the Association of British Insurers, adds: “We remain acutely aware of the challenges leaseholders affected by the cladding and fire safety crisis are facing. We support the FCA’s recommendations on a risk-sharing scheme and have been actively discussing various options with industry and government. Our work in this area will continue at pace.

“The FCA’s detailed analysis provides important insight on the state of the insurance market for high-rise residential buildings with a clear recognition that there is no evidence to suggest insurers are making excessive profits. We recognise the issues the FCA raises regarding the availability of information on these buildings and will work with our members, regulators and relevant industries to achieve greater consistency in recording data. We are also committed to improving transparency for leaseholders and will work with the FCA to implement a framework that enables this.”

Since the fire, the remains of Grenfell Tower have been wrapped in protective sheeting and preserved for the purpose of a public inquiry. After the inquiry concludes, the government plans to demolish the building and install a permanent memorial to those who died.