Quick Answers
What must a block buildings insurance policy cover?
Full reinstatement cost of the building, public liability, property owners liability, employers liability, loss of rent following an insured event, and trace and access cover as a minimum. The sum insured must reflect the cost of demolishing and rebuilding the building — not its market value. Exclusions vary significantly between policies and must be checked carefully.
Must the managing agent disclose insurance commission?
Yes. Under the Leasehold and Freehold Reform Act 2024 and existing transparency obligations, managing agents who receive commission or any remuneration from placing the block's insurance must disclose it in writing — specifying the amount or rate and who pays it. Undisclosed commission is a conflict of interest and is contrary to the agent's obligations to leaseholders.
Can leaseholders see the block's insurance policy?
Yes. Leaseholders have a statutory right to request a written summary of the policy and to inspect the full policy and supporting documents. The landlord or managing agent must provide this within a reasonable time. The 2024 Act strengthened these rights further, requiring transparency about the premium paid and any commission received in connection with the policy.
The two problems in block insurance: underinsurance and undisclosed commission. Underinsurance occurs when the sum insured on the policy is lower than the actual reinstatement cost of the building. It does not affect the premium much — but it dramatically affects what the insurer pays in a claim. A block insured at 70% of its reinstatement value will typically receive only 70% of any claim settlement under the average clause, leaving the RTM company and leaseholders to fund the shortfall personally. Undisclosed commission occurs when the managing agent earns a percentage of the premium from the insurer for placing the policy, without telling the RTM company or leaseholders. Both problems are common, both are avoidable, and neither tends to surface until either a major claim is made or a new agent reviews the previous arrangement.
What good looks like: a policy placed with a reputable insurer at the correct reinstatement sum, with full coverage for the building's specific risks, at a competitive premium that has been subject to periodic market review. The agent's remuneration for placing the policy is disclosed transparently in the service charge accounts, on a fee basis rather than a commission basis, so there is no incentive to place the policy with the highest-premium insurer. A reinstatement cost assessment is carried out every three to five years to ensure the sum insured remains accurate.
Key Takeaways
The sum insured must reflect reinstatement cost, not market value
The single most important number in a block insurance policy is the sum insured — the maximum the insurer will pay in the event of total loss. This must be set at the full reinstatement cost: the cost of demolishing the building, clearing the site, and rebuilding it from scratch to the same specification. Market value (what the flats would sell for) and reinstatement cost are different numbers and often significantly different ones. Insuring at market value is one of the most common causes of underinsurance in residential blocks, and the financial consequences of underinsurance only become apparent when a major claim is made.
Commission disclosure is now a legal obligation, not a courtesy
The Leasehold and Freehold Reform Act 2024 formalised what was already a transparency obligation for managing agents: where an agent receives commission or any other remuneration from an insurer or broker in connection with placing the block's policy, this must be disclosed in writing to the RTM company and in the annual service charge accounts. The disclosure must specify the amount or rate of commission and who pays it. An agent who continues to receive undisclosed commission after the 2024 Act's commencement is not just behaving contrary to professional standards — they are breaching a statutory obligation.
Commission creates a perverse incentive that costs leaseholders money
Where a managing agent earns commission as a percentage of the insurance premium, they have a financial incentive to place the policy with the insurer who offers the highest premium — because that generates the highest commission. This is directly contrary to the agent's obligation to act in leaseholders' interests, which requires them to seek the best value policy at the most competitive premium. Moving to a flat fee basis for insurance placement removes this incentive entirely. The fee is disclosed in the accounts and the agent's interest and the leaseholders' interest are aligned: both want the most appropriate cover at the lowest cost.
A reinstatement cost assessment should be done every three to five years
Construction costs change over time. A reinstatement cost assessment carried out when the block was first built or first insured may be significantly out of date five or ten years later — either because construction costs have increased faster than the policy's annual index-linking, or because building regulations have changed in ways that would require compliance upgrades during any rebuild, or because the original assessment was simply wrong. A professional reinstatement cost assessment by a chartered surveyor every three to five years is the only reliable way to ensure the sum insured remains adequate.
Not all communal areas damage is automatically covered
Most block buildings insurance policies cover the structure and fabric of the building, but coverage for specific types of communal area damage depends on the policy wording. Subsidence, flooding, escape of water, and accidental damage may all be subject to different exclusions, excesses, and conditions depending on the insurer and the specific policy terms. RTM directors should read the policy's exclusions list carefully, not just the coverage summary. Common exclusions that catch blocks out include wear and tear exclusions (damage caused by deferred maintenance is typically not covered), and underground drainage exclusions (blocked or cracked drains are often excluded).
The block's insurance does not cover leaseholders' contents
The buildings insurance covers the structure, fabric, and fixed installations of the building. It does not cover the personal possessions, furniture, or contents of individual leaseholders. Leaseholders need their own contents insurance for their belongings. Where the buildings insurance covers internal fitted fixtures within individual flats (kitchens, bathrooms, fitted wardrobes) this varies by policy — check the policy schedule. Some leases require leaseholders to hold their own contents insurance as a covenant; check the specific lease wording. Leaseholders who discover after a claim that their loss is not covered by the buildings policy because it falls within the "contents" category have no recourse against the RTM company.
What a Block Buildings Insurance Policy Must Cover
A comprehensive block buildings insurance policy for a residential block of flats should include the following elements as a minimum. Policies that omit any of the mandatory items below leave the RTM company and leaseholders exposed.
Must be in every policy
Core coverage — non-negotiable- Buildings cover at full reinstatement cost (not market value)
- Public liability — third party injury or property damage
- Property owners liability
- Employers liability where communal staff are employed
- Loss of rent where flats become uninhabitable after an insured event
- Trace and access cover — finding the source of a leak
- Escape of water — burst or leaking pipes and tanks
- Storm and flood damage to the structure
- Subsidence and ground heave
- Fire, lightning, explosion, and aircraft damage
Worth including for most blocks
Recommended additions — check your policy- Accidental damage to communal areas and fixtures
- Legal expenses cover for property disputes
- Engineering inspection for lifts and pressure vessels
- Directors and officers liability for RTM company directors
- Terrorism cover (often excluded as standard — check)
- Malicious damage by tenants or occupants
- Underground services cover for communal drainage
- Alternative accommodation costs during rebuilding
Reinstatement Value: The Number That Matters Most
Reinstatement value is the cost of demolishing the building and rebuilding it from scratch, including professional fees, planning costs, surveys, site clearance, and temporary accommodation for residents during the rebuild period. It is not the same as market value. It is not the same as the rateable value or the purchase price of the flats.
For most standard residential blocks, reinstatement cost is lower than market value — because market value reflects the location, demand, and scarcity of housing in the area, none of which affect the cost of bricks, mortar, and labour. But this is not always the case:
- Period conversions and listed buildings: where the original building fabric requires specialist materials or craftspeople, reinstatement costs can be substantially higher than market value
- Buildings with complex M&E installations: high-specification communal systems (underfloor heating, MVHR systems, communal heat networks) add significant reinstatement cost
- Post-Grenfell compliance costs: a rebuild following total loss must comply with current building regulations, not those that applied when the building was originally built. For pre-2010 blocks, this can add substantial cost for fire safety measures, cladding specification, and structural requirements
Many block insurance policies include automatic index-linking — the sum insured increases each year in line with a construction cost index. This is useful for keeping a correct sum insured current, but it does nothing to correct a sum insured that was wrong in the first place. A block that was underinsured when first placed at £1.2 million and has been index-linked for ten years is still underinsured — just at a higher number. The starting point must be correct. A professional reinstatement cost assessment is the only way to establish it.
How Blocks End Up Underinsured
| Cause | How It Creates Underinsurance |
|---|---|
| Sum insured based on market value | For a standard residential block in East London, market value significantly exceeds reinstatement cost. Insuring at market value leads to overpaying the premium without adding corresponding protection — the claim is still settled on reinstatement cost basis and the insurer applies the average clause to reduce any payout proportionally if the sum insured exceeds the reinstatement value. Conversely, if reinstatement cost exceeds market value, insuring at market value leaves the block underinsured. |
| No professional reinstatement cost assessment | Where the sum insured is estimated by the managing agent or the previous agent rather than a qualified surveyor, it is frequently wrong. The assessment requires knowledge of current construction costs, local labour rates, specialist requirements for the specific building type, and compliance cost uplift for current building regulations. Managing agents are not the right people to estimate this. |
| Index-linking from a wrong starting point | As above — index-linking preserves a correct figure but cannot correct an incorrect one. Blocks that have been insured for many years without a professional reassessment commonly carry an inaccurate sum insured that has simply been uplifted annually without ever being verified. |
| Failure to update after major refurbishment | Where the block has been substantially refurbished — new communal systems, external wall insulation, roof replacement, lift replacement — the reinstatement cost changes. A policy not updated to reflect these changes may underinsure the improved specification. |
| Commission incentive to minimise premium | Where commission is paid as a percentage of the premium, there is a perverse incentive to keep the sum insured low — a lower sum insured means a lower premium and a lower commission. This incentive is one of the arguments for fee-based rather than commission-based insurance placement. |
What Managing Agents Are Now Required to Disclose
The Leasehold and Freehold Reform Act 2024 strengthened the disclosure obligations that apply when a managing agent places a block's buildings insurance. The following must be disclosed in writing:
Where the agent receives commission as a percentage of the premium (for example, 15% of a £30,000 premium = £4,500), the rate and the amount must be disclosed. The name of the insurer or broker paying the commission must also be stated. This disclosure must be made before the policy is placed and must be repeated in the annual service charge accounts.
Commission is not the only form of remuneration agents can receive. Volume bonuses, delegated authority fees, profit share arrangements, and other payments from the insurer or broker must also be disclosed. The 2024 Act captures any form of financial benefit received in connection with the placement, not just headline commission.
The accounts must show how the commission or other remuneration has been treated. Where it has been credited to the service charge fund (reducing the net cost of the insurance to leaseholders), this must be shown. Where it has been retained by the agent as part of their remuneration, this must be disclosed clearly rather than buried in the accounts.
While not explicitly required by the 2024 Act, a transparent agent should be able to explain how the sum insured was arrived at — whether from a professional reinstatement cost assessment, from index-linking of a previously assessed figure, or from an estimate. Where the sum insured is not based on a professional assessment, this should be flagged to the RTM company with a recommendation to commission one.
The full policy document is lengthy and technical. A transparent agent should provide the RTM company with a plain-language summary of the key coverage terms and significant exclusions each year when the policy is renewed. This allows the directors to identify coverage gaps without needing to read the full policy schedule.
Leaseholder Rights on Block Insurance
Individual leaseholders have statutory rights in relation to the block's buildings insurance under the Landlord and Tenant Act 1985 as amended by subsequent legislation and the Leasehold and Freehold Reform Act 2024:
- Right to a written summary: any leaseholder can request a written summary of the block's insurance policy. The summary must include the insurer's name, the sum insured, the risks covered, and the amount of any premium paid. This must be provided within a reasonable time of being requested.
- Right to inspect the policy: leaseholders can request to inspect the full policy document, the application form, and any endorsements. The landlord or agent must make these available for inspection and provide copies on request.
- Right to challenge the reasonableness of the premium: where a leaseholder believes the insurance premium included in the service charge is unreasonably high — for example because the agent is earning undisclosed commission that inflates the cost — they can apply to the First-tier Tribunal for a determination that the cost is not reasonable. The burden falls on the landlord or agent to justify the cost.
- Right to nominate an insurer: where a leaseholder nominates an insurer to quote for the block's insurance, the landlord must consider the nomination and explain in writing why they are not proceeding with that insurer's quote if they choose not to. This is a procedural right, not an absolute right to have a nominated insurer accepted.
For how insurance commission was identified and eliminated in a real block, see Success Story: A Block in Enfield Cuts Its Service Charge by 22%. For the full list of questions to ask a managing agent before appointing them — including on insurance disclosure — see Choosing a Block Managing Agent. For how insurance costs appear in properly prepared service charge accounts, see Service Charge Accounts Under the 2024 Act.
Reviewing Your Block's Insurance: A Practical Checklist
RTM directors should review their block's insurance position annually at renewal and ask their managing agent to address any gaps. The questions to ask:
- When was the last professional reinstatement cost assessment carried out and by whom? If more than five years ago, commission one before the next renewal.
- What is the current sum insured and how does it compare to the reinstatement cost assessment? If it is materially lower, the policy is underinsured.
- Has the managing agent disclosed in writing all commission and remuneration received in connection with placing this policy? If not, request it in writing before renewing.
- Has the policy been subject to competitive market review in the past three years? Insurance markets change and a policy that was competitive three years ago may not be now.
- What are the key exclusions in the current policy? Ask for a plain-language summary and check for gaps relevant to the block's specific circumstances.
- Is the block's occupancy and use accurately described in the policy? A block with short-term lets or commercial ground-floor units may need specific policy endorsements.
- Is directors and officers liability cover in place for the RTM company directors? This is separate from the buildings insurance but should be considered alongside it.
Frequently Asked Questions
Full reinstatement cost of the building, public liability for third party claims, property owners liability, employers liability where communal staff are employed, loss of rent following an insured event, and trace and access cover for locating leaks. Fire, storm, escape of water, subsidence, and lightning damage are core covered perils. Accidental damage, legal expenses, engineering inspection for lifts, and directors and officers liability are common additions worth including. Always check the exclusions list — policies vary and cover for subsidence, flooding, and underground services differs significantly between insurers.
Yes. Under the Landlord and Tenant Act 1985 and the Leasehold and Freehold Reform Act 2024, leaseholders can request a written summary of the policy and to inspect the full policy and supporting documents. The landlord or agent must comply within a reasonable time. The 2024 Act specifically strengthened transparency requirements around the premium paid and any commission received. Where a managing agent refuses to provide this information, the leaseholder can raise a formal complaint and ultimately refer the matter to the First-tier Tribunal.
No. The block's buildings insurance covers the structure and fabric of the building — walls, roof, floors, fixed installations, and communal areas. It does not cover leaseholders' personal belongings, furniture, or contents within individual flats. Each leaseholder needs their own contents insurance. Some block policies cover internal fitted fixtures (kitchens, bathrooms) within individual flats — check the policy schedule to be certain — but personal contents cover is always the individual leaseholder's own responsibility.
Reinstatement value is the cost of demolishing and rebuilding the block from scratch to the same specification, including professional fees, planning, site clearance, and temporary accommodation during rebuilding. It is not the same as market value. Insuring at market value rather than reinstatement cost is one of the most common causes of underinsurance. A block insured below reinstatement cost is subject to the average clause — the insurer reduces any claim settlement proportionally to reflect the degree of underinsurance. A professional reinstatement cost assessment by a chartered surveyor every three to five years is the only reliable way to keep the sum insured accurate.
Under the Leasehold and Freehold Reform Act 2024, managing agents who receive commission or any other remuneration from placing the block's insurance must disclose it in writing — specifying the amount or rate, who pays it, and how it has been accounted for in the service charge accounts. The disclosure must be made before the policy is placed and reflected in the annual accounts. Any form of financial benefit received in connection with the placement is caught — not just headline commission. Undisclosed commission after the 2024 Act's commencement is a statutory breach, not merely a professional standards issue.
When did someone last properly review your block's insurance?
Neon places block insurance on a fully transparent fee basis — no commission, no hidden remuneration from the insurer. We review coverage, check the reinstatement sum, and ensure the policy reflects the block's actual risks. If your current agent cannot tell you what they earn from your insurance, talk to us.
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