Insurance income under threat

Insurance commission payments are an important revenue line for property managers so recent announcements by the Competitions and Markets Authority (CMA) need serious consideration.
The CMA review
The regulatory review covered buildings insurance commissions and in a recent update the CMA announced that it found evidence that:
  • Leaseholders could be over-paying for cover
  • Property managers are potentially being incentivised to choose an insurer offering higher commissions
The CMA update also said it was considering:
  • Forcing brokers, insurers and residential property owners to disclose their commissions
  • Investigating the relationships between property managers and insurance brokers
Needless to say this could all lead to greater pressure on an important income stream, not to mention a greater administrative burden. 
The insurance market
Trade bodies within the insurance market are lobbying the CMA and other interested parties to lessen the potential impact within a regulatory framework that is built around an obligation to treat customers fairly. Their impact may be limited. 
Our opinion
We are specialists in the property market. We have therefore kept the CMA probe under constant review. We expect the CMA to continue to focus its attentions on commissions, which will inevitably maintain pressure on insurance revenue for property managing agents. In our view, the CMA could potentially become even more proscriptive in the short to medium term. 
We can help
For some time now we have been working with many of our property managers to mitigate the potential reduction of commission income. The result is a structure and well-honed process that produces sustainable insurance revenue.
We recommend disclosure of (i) what is included within the core management fee and rates of management charges, (ii) administration and supplementary charges, and (iii) commissions (including commissions earned by the property manager for arranging the buildings insurance).
We recommend that property managers must, for each property they manage (because charges may vary depending upon the contract and administration charges set by the landlord) fully disclose details of:
The services and activities that are provided and paid for within a core management fee. This could distinguish between services provided under the service charge and as a management fee. Where non-routine projects incur a management fee, either fixed or related to the size of the project, the rates applied must be disclosed, including any points at which the rate of charge varies.
All administration and supplementary charges for services, to enable leaseholders to better understand the charges they face as a leaseholder.
Any commission earned by the property manager (including fees/commissions in relation to building insurance). 
If you’d like information on how we can help you protect your commission income contact us today on 01789 761670.

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