Independent Review of Strata Insurance Practices – Phase 1: Findings and Recommendations
This paper and its predecessor Consultation Paper released on 30 March 2022 are the first step of an independent review and investigation by the author into the functioning of the strata insurance market. It is part of a journey intended to carry the strata management and insurance industries through a review in three phases:
- Phase 1 (this paper) relates to the disclosure practices of intermediaries.
- Phase 2 will discuss the remuneration of intermediaries and possible reforms.
- Phase 3 will discuss competition, affordability and the availability of strata insurance.
Phase 1 aims to identify disclosure limitations and recommended ways forward to achieve transparent disclosure for strata property owners and their strata committees.
The paper sets out the author’s findings and recommendations following submissions and discussions with interested parties arising from the Consultation Paper.
The paper finds that, where the strata manager and broker are both involved, the unorthodox structure of the strata insurance market is confusing:
- It is convoluted because frequently part or all of the commission is paid to the strata manager, and a separate broker fee is charged to remunerate the broker for the broker’s services.
- It is complicated because frequently, not all of the commission is rebated to the strata manager, the remainder being retained by the broker.
- It is compounded in many cases by opaque or incomplete disclosure to the owners corporation of insurance-related transactions.
Recommendations
The main recommendations in the paper are:
- Financial disclosures in the form of broker quotations and invoices be prepared by reference to standard templates containing a minimum set of eight items with common definitions.
- Brokers and strata managers arrange to ensure timely transmission of quotations and invoices to the strata committee during the annual renewal process.
- Financial disclosures be accompanied by a statement of the scope of services by the strata manager and broker and a full explanation of commercial relationships between broker and strata manager (noting that some are beneficial to all parties, in the interests of the owners, and others raise questions).
- SCA* and NIBA* consider the recommendations in detail and give effect to decisions they take on a self-regulatory basis by establishing guidance notes or practice standards for their respective members.
* SCA is the Strata Community Association. NIBA is the National Insurance Brokers Association
Submissions
Below are the non-confidential submissions in response to the consultation and discussion paper for Phase 1: disclosure.
Submission CFA and QCA – Consumer groups
Submission Marshall Blain – Lot owner
Submission Paul French – Lot owner
Submission Raynea Robinson – Broker
Submission Peter Minnucci – Broker
Independence
This project has been commissioned by Steadfast Group but the views, findings and recommendations in the paper are those of the author and are independent of the Steadfast Group and its commercial interests.
Steadfast’s role has been crucial, however, because it has enabled the author to obtain confidential information from numerous sources, some connected with Steadfast and others in the wider insurance industry and strata management industry. Without this access, the project would not have been possible.
There has been extensive dialogue with a range of brokers, strata managers and numerous others. This range of input has facilitated understanding, analysis and assessment by the author of the strengths and weaknesses of current practices and potential avenues for reform of disclosure practices.
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