Phase 3

Phase 3: Energising the strata market

A blueprint for affordability, availability, competition

The final output of Phase 3 of an independent review and investigation by the author into the functioning of the strata insurance market. It follows Phase 1 and Phase 2 papers released in July and December 2022 respectively. The three phases are –

• Phase 1: Disclosure practices of intermediaries
• Phase 2: Remuneration of intermediaries and possible reforms
• Phase 3: Affordability, availability and competition in strata insurance.

Brief overview of Phases 1 and 2 

The goal of Phase 1 was to identify disclosure limitations and to recommend ways forward aimed at achieving transparent disclosure for strata property owners and their strata committees. It recommended a transparent disclosure regime for intermediaries (strata managers and brokers). The recommendations have been widely supported but are yet to be introduced.

Phase 2 identified three conflicts of interest and expressed my conclusions that one of these three, broker commissions, is a manageable conflict but that the other two need to be addressed. These two are where –

• the strata manager agrees with the broker on a share of commission to be rebated to the strata manager and
• the broker agrees with the strata manager on a broker fee that is additional to the commission.

Together they comprise the commission rebate/broker fee system. Following analysis of these conflicts, I have formed the view that the commission rebate/broker fee system should be phased out in three stages via a structural realignment across this year and next.

This view is not widely supported by strata managers or brokers as many of them wish to maintain existing practices despite the issues identified in my Phase 2 paper.

Phase 3: affordability, availability and competition in strata insurance

The subject of affordability and availability has come to prominence in the last 3 or 4 years across most classes of general insurance. It is an unsurprising consequence of the current ‘hard’ insurance market. This hard market has been exacerbated and extended by the unusually large number of recent adverse weather events globally and locally. These events in Australia were dominated of course by the bushfires in NSW and Victoria in 2019 and the numerous flooding events across the country since then.