The strata industry’s murky reputation may finally be giving way to greater transparency. Brokers have repeatedly told IB about the excessively high fees and commissions charged by some unethical strata brokers and managers, opaque fee systems and conflicts of interest. This week, in a move that took many stakeholders by surprise, the Strata Community Association NSW (SCA NSW) announced that, starting next year, its members will begin a phased replacement of insurance commissions.
The SCA is sponsored by major strata industry players including CHU and Macquarie Bank. Some of its members – including PICA Group – have referred to removing insurance commissions as an “existential threat” to the industry. However, in recent years the SCA’s efforts to improve strata industry practices with voluntary guidelines have, according to brokers, consumer groups, an ABC Four Corners exposé and the NSW government - had little overall effect.
The NSW government was already moving towards stopping commissions. In July, new laws banned strata managers from receiving a commission on the insurance “when they don’t play a role in finding the best deal for residents.”
However, the SCA’s announcement is a big change and will likely have a significant impact on brokers. The SCA’s media release called it a “milestone moment in strata.”
“It’s a significant shift from past positions and we didn’t expect it,” said Tyrone Shandiman (pictured above left), chair of the Australian Consumers Insurance Lobby (ACIL) and a strata broker. ACIL has strongly supported a ban and played an important role in shining a light on some of the strata industry’s troubling practices. Last year ACIL’s Nationwide Survey on Questionable Practices in Strata Insurance reported that the industry’s unethical and sometimes illegal activities were systemic and sometimes rewarded.
“Our view is that growing consumer concern and the government’s current focus on conflicted remuneration have made change inevitable,” said Shandiman.
He agreed that this is a “milestone moment” for the industry and welcomed it as an “important step towards clearer pricing and better alignment with owners’ interests.” However, he said the real test is whether this ban captures all financial benefits and not just those labelled “commission.”
“If this is the only change, loopholes remain,” said Shandiman. “For example, related-party arrangements or re-badged fees, including referral fees, marketing allowances, admin/placement charges and soft-dollar benefits.”
IB asked the SCA if these other financial benefits are included in the ban?
“Strata insurance commissions are widely understood to be a fee paid by an insurer or broker to a strata managing agent, for arranging or renewing a strata insurance policy,” said Robert Anderson (pictured above right), president of the SCA NSW.
Anderson said his peak body will be releasing full guidance before the ban is implemented.
Rather than changing the relationship between strata managers and brokers, Anderson sees the end of commissions for strata managers as changing “the clarity around how they are paid.”
“Moving to a more transparent payment system will provide clarity for owners and allow managers and brokers to keep working together in a straightforward, professional way,” he said.
“This should reset competition,” he said. “Some brokers have competed on how much they could pay a strata manager via commissions and extra fees - that model is now under pressure.”
Shandiman wants this “reset” to be followed up by more reforms from the NSW Government. He said those should define conflicted remuneration broadly, require transparent pass-through of savings when commissions are removed and enforce the SCA’s ban.
IB has approached the National Insurance Brokers Association (NIBA) for its reaction to the ban and its impact on brokers. A spokesperson said they are working on a response.
Are you an insurance broker? What’s you reaction to the SCA NSW’s ban on insurance commissions for strata managers? How do you see this impacting the strata industry and its stakeholders? Please tell us below.
