Reinsurance support is now in place to launch the Fire Safety Reinsurance Facility (the Facility) from 1st April 2024, in an industry intervention to help improve the availability of insurance for certain buildings with combustible cladding and other fire safety issues.
The Facility has been established by (re)insurance broker McGill and Partners with extensive support from the Association of British Insurers (ABI) and also through working in partnership with the British Insurance Brokers’ Association (BIBA) which will ensure brokers are made aware of the Facility. It has two key intentions – to expand capacity for insurers already writing business for affected buildings and to encourage competition across the market so that more firms will provide cover. The ultimate solution remains the urgent need for works to take place to make buildings safe and resilient. The Facility is expected to run for three to five years whilst this happens.
The first step will be for the participating insurers – Allianz, Aviva, Axa, RSA and Zurich – to enter higher-risk buildings they currently insure, and which are awaiting remediation works, into the Facility at the point of their annual renewal. These firms have continued to be active in the market and are the top five firms providing insurance cover for commercial and residential buildings.
The Grenfell tragedy and Dame Judith Hackitt Review exposed significant construction and fire-risk issues related to these buildings. As a result, insurers have to consider the heightened risk of an entire building sadly being destroyed in the event of a fire and have had to limit the amount of cover they could provide because the risk is too high for one firm to cover on its own. Brokers, Freeholders and Managing Agents have instead had to source insurance cover from multiple firms, meaning that several insurers are involved in covering one building, creating a ‘layered’ effect and adding to the cost. It is these buildings which will likely benefit most from the Facility.
Through a reinsurance panel led by Swiss Re, the Facility will enable insurers to expand the capacity they have for writing insurance for affected buildings and take on new business. Over the course of the following 12 months, the insurers will consider which additional buildings can be entered into the Facility as and when their insurance policies are due for renewal. The EndOurCladdingScandal team, commented:
“It is now 18 months since the FCA recommended that the Association of British Insurers (ABI) “work with the Government to create a risk pooling solution, providing a plan for this solution and its implementation within 2 months”, and that the Department for Levelling Up, Housing and Communities (DLUHC) “consider Government providing financial backing of the risk-pool. After failing to meet the Summer 2023 target launch date, the Reinsurance Facility is to launch from 1 April 2024. Whilst we thank the ABI for meeting with us today to explain how the Facility will work, the concerns we have highlighted to the ABI and DLUHC repeatedly over many years have not been allayed.
These include, but are by no means limited to, how many buildings and leaseholders will be helped and how the Facility’s success will be measured – for example, to what extent premiums will reduce. Despite the FCA explicitly requesting estimates of the impact on premiums in its September 2022 Report, the ABI was unable to provide any detail on this. It is especially disappointing that the Facility will only be available at point of renewal. If the ABI and BIBA had worked at true pace, many leaseholders across the country would not have to wait another year before they can apply.
The Government knows full well that it would be morally decent to provide financial backing for the Facility and to cut Insurance Premium Tax on unsafe buildings. Unfortunately, it continues to ignore all requests to do the right thing and hopes industry will somehow do this on their behalf. In an ongoing cost-of-living crisis, HM Treasury prefers to profit from the misery of victims of the building safety crisis. Our primary concern is that this Facility is set to fail; it will not ensure the positive outcomes we desperately need and deserve. We need the Government to step up and address this ongoing market failure.”
