The insurance market is not working properly for residents stuck in buildings with unsafe cladding, and many have seen their premiums double in just a year, Communities Secretary Michael Gove has said.
In a letter to the Financial Conduct Authority asking the watchdog to investigate the sector, Mr Gove said he is “extremely concerned” about a situation that is leaving customers with “crippling costs”.
He said the Government has been trying to ensure dangerous cladding is removed from all medium-sized blocks of flats since the Grenfell disaster.
But in the meantime insurance costs have rocketed for residents in the buildings, and some insurers are “unwilling” to offer new policies, leaving customers with less choice.
Mr Gove wrote in his letter to FCA chief executive Nikhil Rathi: “Since I took office, I have been extremely concerned to hear from innumerable leaseholders about the pressure they face from rapidly escalating building insurance premiums on high and medium-rise blocks of flats.
“I have been particularly concerned to hear of cases where insurance premiums have escalated by over 100% year on year, leaving residents with crippling costs. It is clear to me that the insurance market is failing some leaseholders.
“Understandably, many policyholders do not view the market as effectively delivering accessibly priced, widely available insurance. I share that view, and do not consider this an acceptable situation.”
The letter, which was also copied to the Competition and Markets Authority, asked for an investigation by the FCA into the insurance industry’s practices.
Mr Gove tasked the regulator with finding out why prices have risen so much year on year and why cover is being restricted for customers in multi-occupancy buildings.
He said helping those affected is urgent, and therefore asked the FCA to submit a final report within six months with initial feedback in three.
We want to ensure #buildingsinsurance products provide fair value and premiums fairly and accurately reflect risk. We are asking firms to consider what actions they can take to help leaseholders. https://t.co/C5lpaV6Kaa
— Financial Conduct Authority (@TheFCA) January 28, 2022
Mr Gove met building companies last week to discuss how to pay for the removal of the dangerous cladding from buildings around the country.
The Home Builders Federation said it does not believe leaseholders should foot the bill to have the cladding taken down, but called for “proportionate” solutions.
The Government has asked developers to set out a fully funded plan of action by the beginning of March.
James Dalton, director of general insurance policy at the Association of British Insurers, said: “Insurers recognise and sympathise with the challenges leaseholders are facing in terms of the increased cost of buildings insurance, and have been working with the Government and FCA to identify options to assist leaseholders until the necessary remediation work has been completed.
“The cost of buildings insurance reflects the significant fire risks associated with many multiple-occupancy residential buildings, which go beyond cladding under a building control system that has been found to be ‘not fit for purpose’.
“We welcome this request to the FCA in the interest of helping resolve the issue for those affected and, alongside our members, will do all we can to assist.”