One year on from the launch of its Fire Safety Reinsurance Facility (the Facility), the insurance industry can share its positive impact.
In the first nine months, over 680 buildings have been entered into the Facility, with a total sum insured of £14.9 billion. This includes examples of high-risk buildings with fire safety issues being able to secure insurance when they otherwise would not have had cover, and evidence of reduced premiums for leaseholders.
Launched on 1 April 2024, the Facility was established as an industry intervention to improve capacity in the multi-occupancy buildings insurance market. In turn, this should support leaseholders in England, Wales and Northern Ireland, and flat owners in Scotland, who face high insurance premiums while living in high-risk buildings with combustible cladding and fire safety issues.
By working with reinsurers, the Facility allows insurers to spread the risk these buildings pose. Its intention is to increase the capacity insurers have to provide cover to high-risk buildings, thereby encouraging competition in the market and the availability of insurance for these buildings. Over time, it is hoped that more competition in the market would lead to a reduction in insurance costs for those leaseholders in buildings that have been worst affected by fire safety issues.
The ultimate solution to support leaseholders for the long term remains the urgent need for remediation to a standard that protects both life and property. However, the industry can share that – in its first year – the Facility is working as intended. The expectation is that progress will continue with more buildings being included in the Facility over the next two to four years while remediation work takes place.
Creating more capacity for insurers
Before the Facility was launched, most insurers had very little capacity to provide cover for buildings with fire risk issues that weren’t already on their books. The Facility has enabled insurers to increase this capacity, allowing them to provide more cover for buildings they already insured, and insure more buildings as new business. This includes buildings which may have previously been uninsured, or were covered elsewhere with higher premiums by another insurer or group of insurers.
Examples of buildings that have been supported in the Facility include one that had not been able to obtain any insurance since mid-2023, which is now covered with a premium that’s 60% less than quotes from outside of the Facility. Another example includes a large residential block of flats which has combustible polystyrene cladding and does not have a sprinkler system installed. Although remediation works are being planned, it’s unlikely these will be completed for several years. The building’s previous insurer was unable to renew its insurance policy due to the building’s risk, however the broker was able to secure cover from a different insurer with capacity provided through the Facility.
Addressing complicated ‘layered’ insurance and offering better terms
One of the reasons behind increased premiums for high-risk buildings was the need for several insurers to be involved in providing cover for one building, as the risks posed by fire safety issues were too significant for one provider to cover on its own. This created a ‘layered effect’ which added to the total cost of cover. The Facility has worked as intended to address this, with insurers able to cover an entire building, or a greater percentage of the building, than they otherwise would have been able to.
One example includes residential apartments in blocks between four and 11 storeys high covered in combustible cladding. The blocks were previously insured across a number of different insurers at £278k, and are now covered by one insurer via the Facility with a premium saving of 17%. Another example is a large block of flats with combustible cladding which was previously insured by several insurers at around £300k, and is now insured by one insurer via the Facility at a premium 37% less than previously charged.
A further benefit has been many examples of buildings within the Facility receiving better terms than they would have if the Facility did not exist. For example, without the Facility, they may have had restrictions in cover such as limits or excesses, or a lack of complete cover.
Impact on premiums
The industry intended that, by expanding capacity in the market, some leaseholders may see some reduction in premiums. There has been evidence of premium reductions for buildings within the Facility. This includes one building of 144 residential flats which still has combustible cladding, after being entered into the Facility, the building’s premium reduced by 28% and with an improved level of cover. Another example includes a seven-storey building in need of remediation which experienced a 54% saving in premium by being entered into the Facility.
The Facility cannot support all buildings equally and some may have seen greater premium reductions than others. Whilst some buildings may not have seen their premiums reduce at all, by being included in the Facility they’ve managed to stay insured, or may have secured a better level of cover than would otherwise be the case. Other factors, such as the type and age of a building, its previous claims history, and the risk of escape of water, continue to be considered alongside a building’s fire risk.
Government support and remediation efforts
The Facility is a commercial intervention to support leaseholders facing high insurance costs. As part of its Remediation Acceleration Plan, the UK Government expressed interest in exploring options for how it could further assist the insurance industry to tackle high premiums for the duration of the remediation programmes. We welcomed this and are actively engaging with government on this topic. Available options that we have previously outlined to Government include cutting Insurance Premium Tax, which would provide a 12% reduction in costs.
The industry has long maintained that remediation to a standard that protects both lives and property remains the only long-term solution. The current focus on ensuring people can escape the building in the event of a fire is essential. However, insurers have to also consider the impact a fire would have on the building when setting premiums. We have urged the UK’s governments to factor the fire risk for the entire building into remediation standards, to improve its resilience and reduce the risk of fire damage to the building, and people’s homes. Fundamentally, everyone deserves to live in safe buildings. If a building is made resilient beyond the minimum standard required for life safety, it will have a lower risk, which is reflected in the cost of insurance premiums. The ABI plans to publish a report with the Fire Protection Association (FPA) setting out how the industry assesses fire risks later this year.
Steve McGill CBE, Founder & CEO, McGill and Partners said: “One year after launching the Fire Safety Reinsurance Facility, it’s incredibly rewarding to see the tangible benefits it has delivered for leaseholders facing insurance challenges due to fire safety risks. I’m immensely proud of what our team at McGill and Partners has achieved in improving insurance outcomes, and we remain dedicated to driving further progress in this critical area.”
“As specialists in developing innovative solutions for complex and high-risk scenarios, we will continue working closely with our insurer and reinsurer partners to expand access to affordable, comprehensive cover in our industry. In the first year, the Facility has proven itself as a competitive market solution to drive a positive impact, and we are excited to build on its success in the years ahead.”
Hannah Gurga, ABI Director General, said: “The financial and emotional strain that leaseholders have experienced while living in buildings with high fire-risks is something that our industry is very aware of and remains determined to do what it can to address.
“The launch of the Fire Safety Reinsurance Facility last year was the culmination of extensive efforts by McGill and Partners and the wider insurance industry to support those affected, and I’m encouraged to see the progress it has made within its first year. The Facility is intended to run for the next two to four years while remediation work takes place, and we hope to see more buildings and leaseholders supported through the Facility during this time. We will continue to discuss options with Government on how it could support leaseholders further and welcome their interest in this. It remains the case that remediation to a standard that protects people’s lives as well as their homes is the only long-term solution.”
Graeme Trudgill, Chief Executive at the British Insurance Brokers’ Association (Biba), said: “The facility is an excellent example of our industry coming together to support leaseholders living in buildings that require fires safety remediation. We now see far fewer cases requiring complex layered reinsurance placements which is a direct effect of the facility bringing new capacity and stimulating competition. We have also seen many case studies sent to us by our members that show significant premium savings of up to 60% once a risk is placed using the facility. We continue to work with Government on ideas to accelerate the pace of remediation and we know from experience that our members can negotiate premiums further down once a building is made fire safe.”
