Q: Our residents’ association is managed for the freeholder by managing agents. After lengthy correspondence they have agreed that the premium paid to insurers for the residents’ association is excessively high and have agreed to reduce it, still using the same company, to match a competitive quotation we supplied to them. They have, without being asked to, sent us a refund for the last three months, to compensate for the overpayment of this period, prior to the renewal at the end of August. However, it would seem to us that there has been a lengthy period of this overpaying, and wonder how far back we can now go to ask for retrospective refunding.
A: Insurance Expert Robert Levene replies:
It is most unusual for any insurance company to change a premium mid-year. The norm is for the insurance to be arranged for 12 months and if there’s competition for the renewal premium to be adjusted, certainly, if a premium is to be adjusted, I would expect it to be for the whole year’s premium and not part of the year’s premium and I would suggest you seek a refund for the whole of the last insurance year.
It is doubtful you could go back to before August 2014, unless you can show that they were reckless or negligent in their handling.
Subject to your claims experience, the normal period between getting competitive quotations at your sort of level of premium is every three years, as many insurers would lose interest in providing competitive quotations if they were asked every year.
There are many good and valid reasons not to always go with the cheapest quotation. These can be for numerous reasons, including claims experience, policy wordings, reputation and service of the insurer, excess levels and many other factors.
Certainly, it is worth keeping a close watch on any of your service charge deals, including insurance, to make sure that they are competitive.
What I’ve said above is if you like, the standard position and what I’m about to say may be inappropriate or unjustified or may in fact give a clue as to what is really going on.
Have you asked what commissions charges or other fees are being paid to the managing agents or indeed, any other party? It is not unusual for there to be a big difference between the true premium being charged by an insurance company and the actual charge made to leaseholders. Certainly in the past, many brokers, combined with managing agents, often doubling the true premium and making various extra charges, some of which were very well hidden within the arrangements between those parties and the insurer. I do not know if that is the case in your particular circumstances, but I do wonder if the mid-year refund is possible because there is such a differential between the true “risk premium” and the actual premium you are being charged.
If the managing agents are members of one of the trade bodies, such as ARMA, or RICS, they should be declaring to you annually, any extras they earn as this is part of the above organisations’ Code of Practice. If they are not members, then it is more difficult, but most reputable agents and freeholders are open about any earnings they have, other than direct fees. Other agents and freeholders go to great lengths to avoid letting leaseholders about the rip-offs that happen.
That is not to say that no commissions are appropriate, as some agents and freeholders do considerable work to do with the insurance, but of course, if they are receiving payment for that via commissions etc, then that should be reflected in the management fees.
FPRA has for many years been campaigning for complete honesty and clarity in this area and FPRA believes it is immoral and fundamentally wrong that any payments for any service, should be made.
FPRA says that all charges to leaseholders, whether it is for repairs, insurance, electricity, entry phone systems or anything else, should reflect the true cost of that service and if a manager or freeholder requires payment, this should be completely transparent and charged separately.
Of course, none of these thoughts maybe appropriate to your situation or indeed to your managing agents, but they may be worth you bearing in mind in your dealings.