Insuring developments is a very profitable business for freeholders and managing agents and is largely unacountable.
So we know developments (like your own property neds to be insured)
When we as individuals take out an insurance policy we check the details of the policy to see that it meets our requirements and check the price to get best value.
Freeholders/managing agents claim that essentially they do the same (and to an extent this is true)
However what they don't tell you is that insurance companies clamour to offer "incentives" to freeholders/managing agents to place their business with them.
The amount of "incentive" varies. Clearly the more developments insured the greater the scope of "incentive", as does the value of the insured.
Imagine a development that needs to be insured against total loss?
A re-build will cost £1,000,000. So that should be the approximate amount of cover that is needed. But suppose the re-build estimate is put at £1,500,000? What then?
You pay a premium based on £1,500,000 of risk, but the insurance company know that only £1,000,000 is at risk. That means they are receiving a premium for £500,000 which they are at no risk of paying out on..
Assuming(purely as an example) the extra premium for the £500,000 cover is £5,000, that is £5,000 of pure extra profit. so the insurance company can "return" £2,500 to the freeholder/managing agent and they both come out on top!
A common tactic that has been deployed is that when taking a re-build valuation the cost of the land is included (which it should not be) After all, if the building is destroyed the land is still there!
Not every claim will be for total loss. Claims can be made for water ingress or storm damage for example?
And this is where another Firstport scam comes in.
Rebates can be awarded depending on claims history. So if Firstport can deny legitimate insurance claims or downgrade them, not only can they charge what should have been legitimate insurance claims to the service charges, but they increase the rebates paid back to them.
Firstport property managers have been encouraged to reduce the number of claims for this reason.
Then of course we have Kingsborough,who under Janet Entwistle reduced their undecalared commissions of up to 40% down to 14 %. They are a "quasi legal" operation that just about does enough not to be prosecuted for fraud. That said some tribunals have ruled that in reality Kingsborough did nothing to justify their earnings. For those that have carried out a right to manage action and have sacked Firstport have managed to find insurance at under half the previous cost.
