Insurance premiums can make up a large part of your factoring fee, so you’ll want to check you are getting the best deal.

By law, every flat owner must carry adequate building insurance covering their property and the common parts. Our general article on common insurance will answer many of your queries on insurance, how to enforce owners’ legal duties, premium increases, and whether you might do better with a common block policy or a series of single household policies.

Many factors provide an insurance arrangement service to their clients, where they arrange the insurance via a broker on behalf of all owners. In many instances, a commission is charged for this service.

Should our factor shop around for a cheaper policy?

Factors employ insurance brokers who are experts in the marketplace to shop around on their behalf. Brokers are covered by the Financial Conduct Authority and their regulations. The broker will be looking for what they consider to be the best product at a competitive price. This will not necessarily be the cheapest as the small print needs to be checked.

Section 5.8 of the Code of Conduct, which factors must work to, says the factor must be able to show owners, on request, how and why they appointed the insurance provider, including any cases where they decided not to obtain multiple quotes.

Should our factor have consulted us about premium rate increases?

Factors, like homeowners, are pretty much at the mercy of the insurance industry. Remember that they are your agent, looking after your interests. There is little they can do to change basic costs, so a consultation exercise with homeowners over something they have no power to change is perhaps unnecessary. However, the factor should inform you and consult with you of any material changes to the policy, such as an increase in the excess, decrease in the level of cover etc..

If your factor hasn’t communicated the reasons for any price increases to you, you should ask them for clarification.

What is the going rate for a common building insurance policy?

We have heard rates quoted of:

• £2000 per £M insured
• £1300 per £M insured
• £1500 – £2000 per £M insured, depending on claims history

Don’t factors get commission?

Couldn’t they use this to offset premium price increases?

Most (but not all) factors are usually paid a share of the insurance broker’s commission. The broker pays this commission in exchange for the factor doing work on their behalf. The commission process does not affect your premium, just who does the admin work – the factor or the broker. The work will include carrying out all the administration, issuing policy documents, dealing with owner’s solicitors, banks, and lenders, collecting all the premiums, carrying the cost of late or non-payment of premiums.

A commission level of 20% – 30% would be typical. The actual surplus from this commission will vary from year to year. If there is a major ‘weather event’, the commission that year might not be enough to cover all the work required.

Sometimes, there is a profit sharing arrangement between the factor and the broker. A low level of claims can increase the profit earned.

In practice, most factors use any fees earned to reduce factoring fees to homeowners. Factoring is a competitive industry, and with homeowners becoming more aware of their ability to change factors, it’s in each firm’s interest to keep fees low or offer additional services.

It can be worth checking round to see if you can get lower fees from a new factor, but do check what services you will be offered and whether there will be any one-off charges made to compensate for a lower overall fee. It is also important to recognise that the total ‘cost’ of your annual factoring bill to the homeowner is not all profit for the factor. One year may be more expensive that another due to the number of repairs and costs involved.

Should the factor insure their whole portfolio under one policy?

Possibly, yes. The portfolio arrangement can help spread the risk for the insurer and where a large claim occurs it could be that the insurer decides not to penalise that particular property, given that they continue to receive large premiums from the factor.

How do I know if our building is carrying enough insurance?

You need to get a professional valuation survey carried out. The Royal Institute of Chartered Surveyors recommends that buildings have a revaluation survey every three to five years. Your Written Statement of Services should state if the cost of doing this is included in your fee or whether it is charged as an extra. Carrying out such a survey, if not a specified requirement in your title deeds, requires a majority of owners to agree. If you are concerned about the current level of insurance cover, speak to your factor in the first instance.

Section 5.10 of the Code of Conduct says your factor must inform you about the frequency of property revaluations and change this if the majority of owners request.

Do we have rights to view the details of the insurance policy?

You have rights to see all details of the policy, including the insurance premium and commission paid.

Section 5.3 of the Code of Conduct, which factors must work to, says the factor must provide each owner with clear information on how their share of the insurance premium is calculated, the sum insured, the premium paid, any excesses, the name of the company providing insurance cover, and the terms of the policy. This can be supplied as a summary of cover, but full details must be available for inspection for free on request (but you may be charged for paper or electronic copies). This information should be provided annually or within three months of a change of insurance provider.

Section 5.5 says the factor must disclose, in writing, any commission, administration fee, rebate etc. that they receive from the insurance provider and any other charge they make for providing insurance.

Who should claim – us or the factor?

Should the factor make one claim with one excess?

Practice on making claims varies.

Some insurers offer a cheaper premium if each owner claims individually. So, each owner will have to pay the stated excess. If an ‘insurable event’ only affects one or two owners, then owners benefit from this arrangement. If, however, every owner needs to claim, the insurer will benefit.

Your title deeds may specify who should deal with claims on behalf of the owners.

Importantly, the Written Statement of Services should state who will handle claims. If your factor deals with them, you will probably pay a higher fee for the service.

If the factor deals with claims, then Section 5.6 of the Code of Conduct says the factor must have a procedure in place for submitting insurance claims on the owners’ behalf, informing them of progress, and liaising with the insurer to check that claims are dealt with promptly and correctly. If owners are responsible for submitting claims on their own behalf, the factor must supply all the information owners reasonably require in order to make a claim.