There is no rule to stop a body corporate manager dealing directly with an insurer and cutting out insurance brokers – but brokers say it is often done without consulting the property owner and leads to a sub-standard service.

They argue strata managers’ decisions can leave insureds exposed, but say there are ways to reclaim the business.

Brisbane-based Strata Insurance Solutions strata specialist Tyrone Shandiman has won back clients after going directly to property owners, bypassing the manager.

“Just because you get a letter of appointment from the strata manager does not mean that’s the end of it,” he told insuranceNEWS.com.au. “Go back to the committee and check that it is their intention. In every case where I’ve done that the committee has said they had no idea about what had happened.”

Insurance Advisernet Australia Account Manager Morgan Jones manages strata properties in southeast Queensland. He recently had a body corporate manager take over insurance for a residential property that had been his client for years.

“Not only is this a massive conflict of interest in being able to sign over something so important as the insurance without even consulting the vested interests, but it disadvantages the body corporate severely,” Mr Jones said.

Since the manager is a tied agent of the insurer, the body corporate becomes tied to the insurer.

“The owners won’t receive an unbiased comparison of their policies or expert advice on how a policy responds and they certainly won’t receive claims advice from an experienced adviser,” Mr Jones told insuranceNEWS.com.au.

He says it is common for property owners to know nothing about the change.

When he has complained to insurers, they say they are responding to a letter from the manager and are required to follow the instructions.

However, Strata Community Australia CEO Mark Lever says there is full disclosure to building owners.

He says insurance commissions worth about 14% of their income are “some compensation” for the time managers will spend on claims – a significant amount of time even if a broker handles the business.

Most of a strata manager’s income comes from owners’ fees, so their overwhelming interest is to best serve the owners, he told insuranceNEWS.com.au.

Mr Lever says various government reviews have found no fault with the practice or that general insurance commissions constitute a conflict of interest.

Mr Shandiman advises brokers to develop a relationship with owners.

This has enabled him to win back clients in several recent instances where strata managers have used the body corporate’s common seal to transfer insurance arrangements.

He says body corporate managers tend to deal with the “easiest” insurer and not necessarily get the best product.

Managers prefer insurers that offer online quoting, while he has obtained better cover from ones that require more time-consuming manual input.

“We have been able to come in 20% lower on a better policy,” he said. “Even 10% can make a big difference and that money can be used somewhere else.”

Mr Shandiman says lack of disclosure is an issue for many owners. He has gained clients who are unhappy that insurance is placed with the same company year after year, sometimes with no review of whether the cover is still suitable.

He makes sure to explain to clients what he does, how it differs from the service a strata manager will provide and how the client benefits.

Strata Insurance Solutions’ website features questions body corporates can ask their strata manager when he or she is arranging their insurance.

“Often strata managers just pay the premium and a couple of months later the expense shows up on the bank statement,” Mr Shandiman says.

“Some strata managers must work on the idea that they will do it now and face the consequences down the track, hoping nothing comes up.”

He does not deal with strata managers because splitting the commission destroys a broker’s margins, and he prefers to deal with active body corporate committees.

Mr Shandiman’s advice to brokers is to check with the committee when a letter of appointment arrives from a strata manager, and “get your roots planted in with the committee”.

He says brokers should have contact with two or three committee members, so contact can be maintained if one leaves.