Fire Safety Reinsurance Facility finalised by McGill and Partners and ABI

The Fire Safety Reinsurance 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.

It has two key intentions: to expand capacity for insurers already writing business for affected buildings and also to encourage competition across the market such 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 Fire Safety Reinsurance Facility is expected to run for between three and five years while this happens.

The first step will be for the participating insurers (ie Allianz, Aviva, Axa, RSA and Zurich) to enter higher-risk buildings they currently insure, and which are awaiting remediation works, into the Fire Safety Reinsurance Facility at the point of their annual renewal. These firms have continued to be active in the market and are the foremost five businesses providing insurance cover for commercial and residential buildings.

Risk issues exposed

The Grenfell tragedy and Dame Judith Hackitt’s Independent Review exposed significant construction and fire-risk issues related to these buildings. As a result, insurers have been forced to consider the heightened risk of an entire building sadly being destroyed in the event of a fire and have necessarily had to limit the amount of cover they could provide because the risk is too high for one firm to take care of 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, in turn creating a ‘layered’ effect and adding to the cost. It’s these buildings which will likely benefit most from the Fire Safety Reinsurance Facility.

Through a reinsurance panel led by Swiss Re, the Fire Safety Reinsurance 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 next 12 months, the insurers involved will consider which additional buildings can be entered into the Fire Safety Reinsurance Facility as and when their insurance policies are due for renewal.

Emotional and financial strain

Insurers have long recognised the emotional and financial strain that’s being placed on leaseholders in England, Wales and Northern Ireland and flat owners in Scotland, and support the Financial Conduct Authority’s rules on providing greater protection and transparency.

While the launch of the Fire Safety Reinsurance Facility is an important milestone, insurers have always said that there will be no single insurance intervention that could help all leaseholders equally. It’s the buildings that will see the costly ‘layered’ insurance replaced with cover through the Fire Safety Reinsurance Facility that will likely see the biggest impact on their premium.

For buildings where one insurer already provides 100% of the cover, they may not see an impact on their premium when entered into the Fire Safety Reinsurance Facility. In the longer term, it’s hoped that the Fire Safety Reinsurance Facility will “reinvigorate competition in the market” and encourage other firms to write more business for affected buildings.

There are options available to Government that could have a more immediate impact for leaseholders. This includes providing financial support to the Fire Safety Reinsurance Facility, which may increase market confidence and encourage even more firms to join, and also cutting Insurance Premium Tax (which would provide a circa 12% reduction in costs).

For their part, leaseholders should contact the individual or company responsible for arranging their insurance cover, who can then discuss the Fire Safety Reinsurance Facility with their broker or insurer.

More information on how the Fire Safety Reinsurance Facility will work is available online. Information for brokers representing the affected buildings is available from the British Insurance Brokers’ Association.

Buildings’ insurance premiums will continue to be based on a variety of risk factors, such as the type and age of the building, previous claims history and other property risks such as storm/flooding or escape of water. External factors including construction costs and supply shortages will also have an impact.

Challenging the industry

Steve McGill CBE, founder and CEO of McGill and Partners, said: “Insuring multi-occupancy buildings with cladding that poses a fire safety risk has challenged our industry for some time. However, the Fire Safety Reinsurance Facility aims to present a competitive market solution that will address this important issue. I’m incredibly proud that McGill and Partners has played such a pivotal role in its formation.”

McGill added: “Contributing to the expansion of insurance availability for buildings with combustible cladding and other fire safety issues has been a significant priority for us. We’re known for our innovative thinking and thrive on creating solutions for complex and challenging risks. It has been possible to develop this transformative and much needed facility thanks to the support of our reinsurer and insurer partners.”

Mervyn Skeet, the ABI’s director of general insurance, noted: “Supporting leaseholders and making insurance more widely available for higher-risk buildings with fire safety issues has been one of the ABI’s top priorities. I’m grateful to McGill and Partners and all of the firms involved for their help in establishing this commercial intervention and hope that it will encourage more insurers to enter the market and offer cover for these buildings.”

Skeet went on to state: “The industry has been determined in its efforts to support leaseholders, but it cannot solve the issue alone. Establishing the Fire Safety Reinsurance Facility is a significant step forward, but Government intervention and swifter remediation is still the only long-term solution. We strongly encourage Government to consider how it can support the Fire Safety Reinsurance Facility to boost confidence in the market or otherwise remove Insurance Premium Tax for affected buildings in order to offer more immediate relief to leaseholders.”

Tim Bailey, president of the ABI, said: “The Fire Safety Reinsurance Facility has been a priority cross-industry project for expanding capacity in the market and boosting competition. We’re pleased to have made the Fire Safety Reinsurance Facility a reality in order to support leaseholders. Speaking as president of the ABI, I’m grateful to all those involved.”

Supporting leaseholders

Aidan Kerr, UK and Ireland lead at Swiss Re Public Sector Solutions, informed Fire Safety Matters: “Swiss Re is delighted to be acting as lead reinsurer for the Fire Safety Reinsurance Facility, which is a great demonstration of how the insurance industry can work together to help support leaseholders. It will help to improve availability of insurance for those people living in affected buildings, while the vital remediation work to rectify their fire safety issues is completed.”

Graeme Trudgill, CEO at the British Insurance Brokers’ Association, concluded: “We’re delighted with the new Fire Safety Reinsurance Facility, which is the culmination of two years of constructive collaboration involving many parties, among them the Government. Launching the Fire Safety Reinsurance Facility was a key commitment in our 2024 Manifesto and aims to create a more affordable insurance solution for medium-rise and high-rise residential buildings with fire safety issues. We hope that, in the longer term, this will have a very positive impact on leaseholders.”