I am acutely aware of the financial and emotional strain that leaseholders, or owners in Scotland, living in buildings with unsafe cladding and fire safety issues awaiting remediation continue to experience.
In June I provided an update on the progress to launch a Fire Safety Reinsurance Facility. The Facility, designed by McGill and Partners, is aimed at helping to restore capacity to the market for multi-occupancy buildings insurance and support leaseholders with their insurance costs.
As recognised by the FCA’s multi occupancy buildings insurance review, it is a difficult market for high-rise commercial buildings insurance, as these are difficult risks to place. Our work to develop the Facility is continuing and significant progress has been made towards securing the necessary capacity from reinsurers. However, sufficient reinsurance capacity is not yet in place to allow us to move to the next stage of developing the Facility and, as such, it will not be ready to launch before the end of the year.
I completely sympathise with all those affected by the issues of unsafe cladding and other fire safety issues and understand that this update may be frustrating. However, I want to reassure leaseholders that we are making good progress and remain fully committed to launching the Facility as soon as possible.
The Facility
Providing cover for buildings which have been found to have significant fire safety issues is a very different prospect compared to ten years ago.
The Grenfell tragedy and the wider building safety issues identified by the Dame Judith Hackitt Review have demonstrated a wider prevalence of fire risk issues related to these types of building, including those that have combustible materials in their external walls, such as cladding or insulation.
Due to these fire safety issues, insurers must price for the potential of significant losses when offering cover for these buildings. In many cases, the substantial fire safety risks have been too large for any one firm to cover on its own and, as such, several insurers are currently needed to provide cover for a single building. This has been a significant factor behind the high insurance costs leaseholders have faced.
A core principle of the Facility designed by McGill and Partners, is to work with reinsurers who would provide the back-up insurance for any building placed in the Facility. This would enable individual insurers to look at providing cover for a whole building, removing the need for multiple insurers. The intention is that this would increase capacity in the market, increase competition and thereby reduce the insurance costs to the benefit of those leaseholders in buildings that have been worst affected by issues with cladding and other fire risk issues.
It is important to note that, when operational, the Facility will be a time-limited commercial intervention, designed to increase capacity and support those buildings that have been worst affected by issues with cladding and other fire safety issues. It is expected to be in place for between 3-5 years whilst remediation takes place. Remediation remains the long-term solution to substantially reduce the insurance costs for affected buildings.
Further support for leaseholders
There are further steps which could be taken now to help reduce costs for leaseholders in the short-term. For example, by removing Insurance Premium Tax for affected buildings awaiting full remediation, the government could help reduce premiums by 12%.
The current proposed Facility is also entirely based on commercial negotiations between independent companies. We have called for the government to financially back the scheme, which would help to improve confidence and capacity in the market, and we are ready to work with the government on progressing such a partnership.
While I appreciate that this update is not what many will want to hear, work on progressing the Facility is continuing as quickly as it possibly can.
The length of time it has taken to get to this point reflects the higher risks these buildings pose and highlights how difficult the market is. While we are making good progress, it’s vital that we continue to work with McGill and our members to provide reinsurers with the confidence and information that is needed to secure capacity.
Our conversations will continue to be a priority and I hope to update with more positive news in 2024.