Retirement Blocks Insurance by Colin Jones

Information below has been submitted by a contributor to this blog. The identies to the companies have been changed.

In leasehold blocks, it is the landlord’s responsibility to arrange buildings insurance – though of course, as with everything else, it is the residents who pay.

Where “Company X” is the management company, they use their sister company “Company Y” – also part of the same Group – as broker to arrange insurance and offer claims-handling support.

Over the past couple of years, leaseholders have become aware of the high commissions which have been charged by “Company Y”. In fact, “Company Y” does not do the work of finding a suitable insurance company – they pass this task onto “insurance brokers M”, who charge a reasonable commission of 3.45% for this work.

For the work “Company Y” has done on claims-handling assistance, however, they have historically charged commissions as high as 33.05%,THIS IS A SCAM AS THE INDUSTRY DOES NOT WORK IN THAT WAY nearly 10 times that charged by “insurance brokers M”.

However, interestingly, for what would logically seem to be the same volume of work each year, commissions have varied widely. “Company Y” has tried to “justify” this by saying that, when the business was transferred to “insurance provider ABC”, they were required by insurance provider ABC to beef up their systems and back-office resources to fulfill additional functions so demanded a higher commission (33.3%) to pay for this.

Leaseholders were not told that this would be the consequence of transferring the business to insurance provider ABC and the increased commission was not disclosed. Why should leaseholders have to pay for “Company Y” to re-equip its own business? That’s their shareholders responsibility.

Basically the book of business was put out to tender to various insurers, “insurance provider ABC” would have won as they paid the highest commission any equipment or re equip “insurance provider ABC” would ?! fund as part of the deal !!!

Six months ago, following a spate of complaints “Company Y” undertook, in writing, to a number of members, that commissions would be reduced to 5% if the commissions reduce so should the premium or do they just run 2 sets of accounts !! in the current (09/10) year.

This appears not to have happened. Instead “Company X” has recently announced that in future “Commissions will be a transparent figure of 14%”, (which rather implies that their previous practices were anything but ‘transparent’).AGREE BUT STILL FISHY

I do not believe that any Managing Agent should profit by placing insurance on behalf of leaseholders and paid for by leaseholders AS THEY TAKE A MANAGEMENT FEE TOO. If there is a modest amount of administration involved, this should be covered within the overall management fee. Leaseholders can then compare one manager’s charges with another “transparently”, without the undisclosed commissions and kick-backs buried in the insurance premium and other service costs.

IF THE PREMIUM IS OVER £100 PER UNIT THEY ARE OVERCHARGING ANYWAY

There are two official channels for taking complaints:

1. Leaseholders Valuation Tribunals. There is a fee for using LVTs.

2. Financial Ombudsman Service (because “Company Y” would be financially regulated). This is a free service.

2A

THREATEN TO REPORT THEM TO THE FINACIAL SERVICES AUTHORITY THAT CAN WORK WONDERS AS THEY HAVE MORE CLOUT THAN THE FOS !

2B

REPORT THEM TO THEIR GOVERNING BODY RICS AS MUCH AS POSSIBLE AND RICS WILL START TO TAKE ACTION RATHER THAN MAKE PROMISES TO DO SO THEN FORGET !!!

Whichever route you decide to take, you must complain to your Block Management Company’s insurance broker first IN WRITTING AND SEND LETTERS BY RECORDED DELIVERY ALWAYS KEEP COPIES REMEMBER PHONE CONVERSATION DO NOT COUNT IN COURT ! , to give them an opportunity for redress. Some of you may already have had success obtaining direct redress from the Block Management Company. If so add a cooment on this blog.

As far as the Financial Ombudsman Service (FOS) is concerned, you must first obtain a ‘deadlock letter’ from your Block Management Company’s insurance broker, to prove you have done all you can to reach a satisfactory resolution, before they will look at your case.

The question of your right to take a case to FOS is not entirely straightforward, as leaseholders are not the Block Management Company’s insurance broker’s direct customers. However, leaseholders are beneficiaries of the buildings insurance policy and pay the premium, so you should be entitled to use the service. Make sure you make this point if you write to the FOS. If anyone has successfully complained to FOS, please can you let me know via this blog. Similarly, if you have tried to use FOS, but had your case rejected, I would like to know about that too.

I KNOW THE FOS ARE VERY INAFFECTUAL MAYBE RICS SHOULD POLICE THEIR MEMBERS !!!

With respect to Leaseholders’ Valuation Tribunals, we have found three cases which are relevant. Two relate to an organisation in this blog article and all three awarded refunds. Although LVT decisions don’t create precedents, other LVTs do take them into account when considering other cases. They also give a guide to commission figures considered reasonable by the Tribunals.

Here they are:

1. Leaseholders Valuation Tribunal . This is directly relevant to the position leaseholders in “Company X” managed developments have found themselves, with “Company Y” EARNING – charging commissions as high as 33.05%. The Tribunal found:

“…. real concerns about the insurance commission.” (para 60), and could not be satisfied that the commission to “Company Y” was reasonably incurred (para 62). It therefore disallowed the commission for the previous seven years. BUT WHAT ABOUT THE FEES ON TOP OF THE INSURANCE COMMISSIONS TOO?

2. LVT was not actually against “Company Y”, but another broker linked to a managing agent, and is therefore relevant on a point of principle. This Tribunal considered that the commission charged had been too high, and that 10% was the maximum acceptable figure (para 3).

THE REAL CONCERN IS THAT AS WELL AS RECEIVING AN INFLATED PREMIUM THEY GET THE ADMIN FEE TOO

ANOTHER NOT SO PLEASANT TRICK THEY USE IS TO INFLATE THE REBUILD COST OF THE BLOCK TO GET A FAR HIGHER SUM INSURED AND THUS A HIGHER PREMIUM

DO NOT PAY UP IF ASKED FOR CONTRIBUTIONS TOWARDS VALUATION FEES AS THE VALUE WILL ALWAYS BE A TRICK USED TO EXTRACT YET MORE PREMIUM TOO

TYPICALY YOU SHOULD PAY ABOUT £100 A YEAR AS YOUR INSURANCE CONTRIBUTION ON A SMALL APARTMENT ANY MORE AND THE AGENT IS LINING HIS POCKETS AT YOUR EXPENSE !!!!!!

ANOTHER ANGLE OF CONTENTURE IS THE ADDITIONAL PREMIUM/ FEES CHARGED FOR TERRORISM COVER THIS CAN BE BROUGHT SEPERATLEY AT MUCH COST

ALTHOUGH NOT NOT SOMETHING MANAGING AGENTS DO! BEWARE OF THOSE CHEAP INSURANCE DEALS OR DEALS OFFERED BY MORTGAGE COMPANIES FOR A GREAT DEAL ON YOUR BUILDINGS COVER ! IT IS KNOWN THAT A LARGE PERCENTAGE OF THE POPULATION OF APPARTMENT OR FLAT OWNERS BUY THEIR OWN BUILDING COVER WHICH IS WORTHLESS AS WELL AS PAYING THE AGENT TOO

THE BUILDING POLICY ONLY COVERS THE BASIC STRUCTURE OF THE APPARTMENT SO ANY REFURBISHMENT OR CHANGES LIKE A NEW FITTED KITCHEN/BEDROOM OR MOBILITY AIDES ARE NOT IN FACT COVERED BY THE BLOCK POLICY NOR ARE THEY COVERED BY YOUR CONTENTS POLICY

IT IS POSSIBLE TO BUY ADDITIONAL COVER FROM EQUITY & GENERAL ALTHOUGH THIS IS GEARED AT WHOLE BLOCKS IT IS POSSIBLE TO OBTAIN COVER FOR SINGLE UNITS BUT PREMIUMS DO START AT £125

THERE IS NOTHING TO STOP YOU ASKING ME TO GET A COMPARABLE QUOTATION ON YOUR BLOCK INSURANCE THE SAVINGS CAN BE CONSIDERABLE

I AM NOT ONE OF THOSE BROKERS WHO ARE PART OF THE MANAGING AGENTS CARTELLS SO WILL GLADLY HELP THE OTHERS WILL FIND NUMEROUS EXCUSES NOT TO HELP YOU

NOT SURE BUT DOUBT THEY GET ALTERNATE QUOTES SO JUST GENALISED WITHOUT NAMING THEM