CommISSIoN


Possibly oneofthe mostcontroversial subjects in flats insurance is the issue of commission and to whom it is payable. Currently there are a number of ways in which insurancecommissions areeither deliberately hidden or simply not disclosed to flat owners


It is probably no secret that insurance companies pay a proportion of the insurancepremiumto insurancebrokers forarranging andadministering the insurancepolicy. In turn it is commonplace forinsurance brokerstopasssomeofthis commission either to themanaging agents or thefreeholderand it is this practice that cansometimes be considered as controversial.


Itmaynot be unreasonable formanaging agents to earn commission, giventhat they canspend up to 25%oftheir time with insurancerelatedmatters. Putquite simply,iftheyare notremunerated in the form of commissionthentheywould need to incorporatethe cost of this work in their fee structure. The more controversial issue, however, is towhomthey have to disclose commission andwhen.


CurrentlyaManagingAgent is obliged, underthe FinancialServices Authority rules (assuming they are directly regulated), to disclose their commission to thepolicyholderuponrequest,asisthe insurancebrokerplacing thebusinesson theirbehalf.Additionally, somemanaging agents,who aremembers of the Royal InstituteofChartered Surveyors, are authorised to transactinsurance usingan exemptionand need to obtain theirclients’ permissioninwriting to draw commission.


22 Flat Living GUIDETO INSURANCE


There is, however, somedebate as to whether the policyholder needs to disclose thecommissionarrangements to flat owners. This issue can be further complicated by the fact that, if appealed in theLeaseholdValuation Tribunal (LVT), the LVThas no rightofsubpoena andevidence given to it is not sworn on oath. Effectively thismeans a policyholder could withhold details of the commission.


All of this is set to changewhen the second versionofthe InsuranceMediation Directive (IMD2) becomes effective in theUKcirca 2017.Thispiece of European legislationwilldictatemandatory commissiondisclosureand, hopefully, providetransparencytoflat owners. Most flatownersare unlikelytoobject to commission being paid, as long as the recipientisproviding aservice forwhich thelevel of remuneration is appropriate.


For flat owners that own a share of their freehold orwhereeitherthe Residents AssociationorRTMCompanyarrangesthe insurance, commissiondisclosureshould already be transparent butfor flatowners living in blockswhere the freehold is owned by acommercialfreeholdinvestment companythismay remain athornyissue forseveral yearstocome.


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