Property insurers have forced “crippling costs” onto residents of apartment blocks in the aftermath of the Grenfell disaster, the U.K. government said as it requested a review of the market.
Some residents in medium- and high-rise buildings have seen their insurance premiums double in a year, Housing Secretary Michael Gove said in a letter to the Financial Conduct Authority and Competition and Markets Authority, which will conduct the review. Gove asked the regulators to look into the price increases and the reasons why coverage was limited for properties in multiple-occupancy buildings.
A fire at Grenfell Tower in west London in 2017 killed 72 people and revealed a nationwide issue with flammable cladding on apartment blocks. Lenders and insurers responded by refusing to finance apartment purchases in blocks they feared could also be unsafe, trapping thousands of people in unsalable homes.
While the government published guidance to certify which tall buildings were safe, a shortage of fire inspectors and disagreements over who should pay for checks and remediation work compounded the crisis. UK property developers were ordered this month to pay into a 4 billion-pound ($5.4 billion) fund to fix dangerous cladding on low-rise apartment blocks.
“Despite this progress and the continuing decrease in the instances of fire in multiple-occupancy buildings, building insurance premiums have increased dramatically for almost all leaseholders in blocks of flats,” Gove wrote in the letter.
“The market lacks transparency and there is not currently useful data to explain the rationale behind the increasing premiums charged by insurers and the conditions associated with the cover,” he added.
The Association of British Insurers, an industry group with more than 200 member companies, said it welcomed the move, according to a statement Friday. The group will work with its members to assist the FCA, it said in the statement.
“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’,” said James Dalton, ABI director of general insurance policy.
The FCA has already begun examining the rising cost of buildings insurance, according to a letter to Gove from Nikhil Rathi, chief executive officer of the regulator, published on Friday. The watchdog has also written to insurance executives to set outs its expectations for firms to help solve the problem, remind them of existing rules and warn them that further intervention could be necessary., Rathi said in the letter.
“We recognise it is imperative that the market is able to continue to serve these consumers and further work is needed to assess the cause of any restriction in coverage available for multi-occupancy buildings,” Rathi wrote in the letter. “We share your concern that there is a lack of data, and agree that this creates challenges, in terms of understanding the underlying causes of year-on-year price increases.”
Photograph: A heart-shaped board reading “Justice” outside the remains of Grenfell Tower in North Kensington, London, on Wednesday, May 12, 2021. An extreme example of gentrification is the district of Notting Hill, synonymous with slums and race riots in the postwar period before turning into one of the most highly coveted parts of the British capital. Photo credit: Hollie Adams/Bloomberg.
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