ABI Director of General Insurance Policy James Dalton shares an update on the industry’s work to support affected leaseholders.
Last year I wrote about the issues concerning the increased costs of buildings insurance for properties affected by fire safety defects. Since then, a significant amount of work has continued to be undertaken by the insurance industry, which, alongside the introduction of the Building Safety Act and other Government actions, is improving building safety for the future. However, we remain acutely aware that it is the leaseholders who are continuing to bear the financial and emotional burden now. That’s why I want to provide an update on work that is ongoing, what support insurers can offer once building remediation works have taken place and, for the longer term, how insurers’ confidence in new buildings is being restored by the Building Safety Act.
Insurance is a business based on pricing risk and the cost of buildings insurance for a high-rise residential property will reflect any fire risks that the building poses. It is completely unacceptable that buildings with combustible cladding and other fire safety defects were able to be built in the first place - under a regulatory regime that was subsequently found to be “not fit for purpose”. Insurers were involved in neither the construction nor sign-off of these buildings and it will ultimately be the remediation of these buildings to a standard that ensures life safety and property protection that provides the solution. However, we want to help where we can in the meantime, and we are committed to working collaboratively with all stakeholders on actions to support leaseholders who continue to face high buildings insurance premiums, pending their building’s remediation.
Support for leaseholders
First and foremost, the ABI, our members and the wider insurance industry have been working together with the Government to look at options to support leaseholders who are waiting for their buildings to be remediated, including discussing interventions that could reduce insurance costs. Earlier this year, Michael Gove, then Secretary of State at the Department for Levelling Up, Housing and Communities, wrote to the Financial Conduct Authority (FCA) to ask them to review the buildings insurance market for multi-occupancy residential buildings. The ABI has worked closely with the FCA to support this work - the data that is being collated as part of their review should help to inform the development of future policy options. We await the FCA’s report with interest.
I know leaseholders reading this will ask why we can’t do more and do it sooner. This is a question we continue to ask of ourselves, our members and Government. Market interventions are, however, a highly complex matter and there are many considerations that need to be taken into account to ensure that any interventions that can be made are proportionate and, most importantly, address the problem.
Our members have also been looking at any additional support they can offer leaseholders of buildings where remediation work has been completed. Typically, premiums are reviewed at the end of the policy term, however seven firms have committed to review the premium for high-rise residential buildings affected by combustible cladding as soon as all building safety remediation works have been completed to a sufficient standard, regardless of when the policy ends. Where remediation has reduced the fire risk of the building, and no other factors have changed since the policy was taken out, we would expect the change in the risk posed by the building to be reflected in the premium charged. The firms who have committed to this are Allianz, Aviva, AXA Commercial, Covéa Insurance, QBE, RSA and Zurich UK. Between them, these firms represent a significant proportion of those providing insurance for high-rise residential buildings.
In addition, if customers would like to switch insurers after remediation works have taken place, then the same firms have committed to waive any mid-term cancellation fees that might be included in the policy for that particular building. This will mean that building managers, and ultimately leaseholders, can benefit from the potential to obtain a wider range of insurance quotes from the moment the building has been made safer through remediation.
The new Building Safety Act
Alongside this work, the introduction of the Building Safety Act and a new code of practice from the British Standards Institution have provided a significant step forward in improving fire safety of new high-rise buildings.
Insurers welcome the introduction of the Building Safety Act, and the enhanced regulatory regime it establishes, and I was grateful to the LUHC Select Committee for the opportunity to give evidence to its Building Safety inquiry. The insurance industry looks forward to continuing to work with Government and the new Building Safety Regulator to implement the fundamental reforms set out in the Building Safety Act through secondary legislation. Insurers are not regulators. They rely on an effective regulatory framework for building design, construction and approval to accurately price the risk and, therefore, the policies that they provide to their customers. The reformed building regulatory framework is helping to restore insurers’ confidence in the future safety of buildings that are 18 metres or above. The additional oversight and scrutiny of construction standards, which should set the highest standards of fire safety in new buildings, will be taken into account by insurers when assessing risk and calculating premiums.
The British Standards Institution’s new code of practice for assessing the fire risk of external walls, PAS 9980, is another step forward in ensuring buildings can be properly scrutinised. Where this new assessment has been carried out, and it shows a reduction in the fire risk compared to insurers’ previous understanding, we would expect this to be reflected in the premium charged.
Needless to say, I recognise that safer new buildings of the future do not help the leaseholders who continue to face a multitude of challenges today. It is the fundamental flaws in, and the systemic failure of, the previous building regulatory framework that enabled buildings to be designed poorly. These buildings were then constructed with unsuitable products, signed off by people who didn’t understand the products or methods used and who were operating in an environment where “de-regulation” was key. All of this led to unsafe and higher risk buildings being constructed. This was not a problem caused by insurers, but we recognise we need to be part of the solution.
I am the first to accept that leaseholders will want more from insurers and to reach the point as quickly as possible where building insurance costs can be reduced. We will continue in our efforts as an industry, working with Government, to deliver that. Ultimately, though, insurers want to see all unsafe buildings remediated so that people can, once again, feel safe living in their homes. There have been reports that the pace of work has been slower than hoped, which is why we continue to urge the Government to progress swifter remediation of buildings to a high standard that protects both lives and property.