Written evidence submitted by the Association of British Insurers (ABI) (RDC0138)

 

Executive Summary

  1. The Association of British Insurers (ABI) welcome the opportunity to respond to the Public Accounts Committee inquiry into the remediation of dangerous cladding.
  2. Our thoughts continue to remain with those affected by the Grenfell fire tragedy, and we sympathise with the plight of leaseholders who are still living in buildings affected by fire safety issues, including combustible cladding and insulation. 
  3. Since the Grenfell tragedy and the subsequent fire safety failures identified by the independent review led by Dame Judith Hackitt, which deemed that the regulatory framework was ‘not fit for purpose’, the ABI and our members have consistently worked to support the development of the new building and fire safety regulatory framework and implementation of the Building Safety Act 2022.
  4. Following the publication of the Grenfell Tower Inquiry Phase 2 report last year, we recognise the ongoing impact on leaseholders, and we want to work with the government to take forward the recommendations as set out by the inquiry.
  5. We fully support the recommendations from the inquiry that remediation works must be accelerated, building regulations strengthened, alongside appropriate resources for enforcement.
  6. We welcome the publication of the Remediation Acceleration Plan, which is a positive step and will help provide clarity and certainty for leaseholders and insurers. We are engaging in discussions with the Ministry for Housing, Communities and Local Government (MHCLG) and the Treasury on the potential for the government to work with the insurance industry to help reduce insurance costs as well as increasing resilience to fire safety risks, but also risks from flooding, extreme heat and climate change.  
  7. The insurance industry is keen to play a part in discussions on remediation and how it can help inform risk assessments, so decisions on remediation consider the differing levels of remediation and its impact on buildings insurance.
  8. We welcome the work of the government and the British Standards Institute (BSI) in reviewing the PAS 9980 standards. PAS 9980 has an important role to play in assessing building safety. However, we remain concerned about building safety issues and urge the government to adopt a remediation approach that prioritises property protection and building resilience as well as life safety. We are keen to engage in this process to better embed the issue of insurance into the remediation process, so it is considered as part of the negotiations on remediation. Without significant changes to PAS 9980 to reflect insurer concerns about the risks that will remain on those affected buildings, even after remediation has taken place, the risk of significant fire spread will remain, and therefore the impact on premiums and leaseholders will continue. Unless PAS 9980 requires the removal of combustible material in the external wall (insulation and cladding) where there remains significant risk of fire spread, then remediation will be limited in its impact on leaseholders.
  9. Buildings with non-combustible cladding systems have significantly better outcomes in fire incidents compared to those with combustible systems. An analysis of RISC Authorities Fire and Flood database revealed that fires with non-combustible cladding result in:
  1. Additionally, case studies demonstrate that materials considered neutral or even positive risk factors by PAS 9980, such as timber cladding, timber balconies and High-Pressure Laminate (HPL), have contributed to severe fire spread and significant property losses. Recent examples include:
  1. The insurance industry is playing its part in supporting leaseholders affected by building and fire safety issues and launched the Fire Safety Reinsurance Facility (the Facility) last year. The Facility is working to expand the capacity for insurers to write cover for affected buildings and to encourage competition across the market to increase the availability of cover.

Fire and building safety

  1. Fire safety is a crucial consideration for all buildings, regardless of the materials or construction methods used. As an industry, we have recent experience of the challenges brought about by, for example, the use of combustible materials on the external walls of buildings e.g. cladding and insulation. We can no longer assume that a fire can be contained within a flat due to the presence of these combustible materials in the external walls, and therefore the potential for the fire to spread and cause a major loss of the whole building remains significant.
  2. We want to work with the government to increase fire safety and resilience ensuring that leaseholders feel safe in their homes and that safety is prioritised across the whole built environment. For our industry, building regulations need further changes to be fit for purpose and ensure good quality, sustainable housing that can withstand the future challenges of climate change and all insured perils such as storms, floods, winds, extreme heat, freeze and escape of water.  

ABI view of the Grenfell Inquiry Phase 2 Recommendations

  1. We fully support the recommendations in Phase 2 of the Inquiry, and want to work with the government, the regulator and other key parties to help improve fire safety and resilience in all buildings.
  2. We support the recommendations made by the Inquiry to introduce a new single regulator for construction reporting to a single Secretary of State, with this Secretary of State responsible for all fire safety policy and the appointment of a Chief Construction Adviser.
  3. We also support the urgent review of statutory guidance, particularly Approved Document B (ADB), as soon as possible.
  4. While we are content that ADB contains a link to the Insurers version of Approved Document, we continue to ask for a strengthened requirement in both the Building Safety Act, the associated building regulations and relevant  guidance, to require buildings to take into account the resilience of the building in addition to life safety.  For example, new buildings under 18 metres can still include some combustible materials in their external walls, whereas in buildings over 18 metres this material is banned. The ban should apply to 11-18 metre buildings as well.
  5. As the Grenfell Inquiry Phase 2 Report sets out, ADB should also reconsider the assumption that effective compartmentations render a stay put strategy as an appropriate response to a fire in a flat in a multi-occupancy building.
  6. The ABI also supports the Inquiry recommendation to urgently review the definition of a higher risk building for the purposes of the Building Safety Act. This review should include consultation with the insurance industry, who look at a building’s risk holistically, including use, occupancy, combustibility of materials, and other risks e.g. flooding or subsidence. 
  7. Effective enforcement will be essential to ensure that the changes to legislation, fire safety strategy and fire risk assessments have the desired effect on improving standards and ensuring people are safe in their homes. The absence of enforcement was a key contributor to the fire safety failings identified from the Grenfell Tower disaster and implementing recommendations from the Inquiry must be accompanied with additional resources and expertise for enforcement.

PAS 9980

  1. Insurers continue to see more rapid fire spread due to building safety defects, often resulting in significant fire claims, and we would like to see a remediation approach that prioritises property protection and building resilience as well as life safety.
  2. The distinction between life safety and property resilience remains important as both play essential roles in comprehensive risk assessment and insurance coverage.
  3. We welcome the work of the government and the British Standards Institute (BSI) in reviewing the PAS 9980 standards. PAS 9980 has an important role to play in assessing building safety. We stand ready to input into this review and advise on insurance considerations, so they are factored into the remediation process early on. Understanding insurer requirements can help inform the risk assessments of these buildings and help to understand the impact of differing levels of remediation on buildings insurance premiums.
  4. We remain concerned about building safety issues and, as mentioned previously, would like to see a remediation approach that prioritises property protection and building resilience as well as life safety.
  5. This includes removal of combustible materials in the external walls of affected buildings where there is risk of significant fire spread throughout the building. Whilst we acknowledge that additional remediation has a cost to developers or building owners, remediation to enhanced standards that will ensure that the property is not completely destroyed after a fire will better protect peoples’ homes and belongings, and provide them with full confidence in the safety of their building.
  6. Insurers price based on risk to the building, and while PAS 9980 seeks to improve the safety of the building and enable safe evacuation, a risk of significant fire spread and damage to the building remains if remediation is not undertaken to a property protection standard and would continue to be reflected in risk-based pricing. 

Fire Safety Reinsurance Facility

  1. Last year, working with industry, government, regulators to help those affected by cladding and building safety issues we launched the Fire Safety Reinsurance Facility.

 

  1. The Fire Safety Reinsurance Facility (the Facility) is a commercial arrangement between insurers and reinsurers which has been designed by Reinsurance brokers McGill and Partners. The Facility aims to help with insurance for buildings with fire safety issues by spreading the risks between insurers and reinsurers. By putting the buildings together in the Facility, the reinsurers can see the broader picture of the risks attached to all such buildings and price for that accordingly. In turn, it means one insurer can again look to provide cover for a whole building.
  2. The Facility is designed to increase capacity in the market, increase competition and thereby over time reduce the insurance costs for those leaseholders in buildings that have been worst affected by fire safety issues. Five ABI members, who are the major insurers in this market, have agreed to participate in the Facility and it is also open to other insurers to join.
  3. Since the Grenfell tragedy, in many cases, the substantial fire safety risks have been too large for any one firm to cover on its own and several insurers were often needed to provide cover for some buildings. Working with reinsurers to provide reinsurance for any building placed in the Facility has enabled individual insurers to provide cover for whole buildings in more circumstances, removing the need for multiple insurers and layers of insurance. This increase in capacity has also led to insurers being more comfortable in writing some new business which they previously didn’t have the capacity to do.  In addition, in its 2022 report on insurance for multi-occupancy buildings, the Financial Conduct Authority (FCA) concluded that: “An effective risk pooling arrangement is also likely to reduce the amount of work required of brokers and other parties when placing the risk; especially if the current layering is no longer needed. This should result in a corresponding reduction in commissions, and we would expect this reduction to be passed on to leaseholders.” 
  4. The Facility is a targeted, time limited, industry-led intervention to support leaseholders awaiting and undergoing remediation with the cost of insurance premiums.
  5. We welcome the publication of the Remediation Acceleration Plan, which is a positive step and will help provide clarity and certainty for leaseholders and insurers. We are actively engaging in discussions with MHCLG and the Treasury on the potential for the government to work with the insurance industry to help reduce insurance costs.
  6. Alongside working with the government on potential options to further support leaseholders, we continue to call on the government to consider a cut in the rate of Insurance Premium Tax (IPT) for those affected by the building safety crisis to offer further support and relief.

January 2025