A complaint from a body corporate against Aviso EIA, alleging the broker failed in its duty of care obligation by not disclosing cheaper residential strata products are available in the direct market, has been dismissed by the external dispute resolution body.

The Australian Financial Complaints Authority (AFCA) ruled the broker did not have access to direct policies and was not obliged to make the client aware of them.

The body corporate was pointed to a direct policy last year as its previous insurer declined to renew and Aviso was unable to source cover in the intermediated market.

The client says the broker was clearly aware of the cheaper policy and should have notified it sooner, and called for the broker to pay the difference between the two policies' premiums over a six-year period.

But AFCA backed the broker, and says the cheaper quote did not include cover for situations that are significant and relevant to the insured strata property’s circumstances.

AFCA says the alternative policy, from an insurance provider which only sells direct to consumers, did not take into account the location and age of the property, which was built in 1975.

The alternative policy does not provide for building catastrophe, loss of rent, temporary accommodation, mechanical breakdown, asbestos, and other additional benefits that were provided under the previous policy arranged by Aviso.

“Even though the complainant describes the alternative policy as a ‘more cost-effective option’, the evidence indicates it was not like-for-like by comparison with the previous one,” AFCA says in its ruling.

“Having considered the policies, I accept the terms of cover between the previous and the alternative policy are substantially different.”

AFCA says the available evidence shows the broker acted professionally and reasonably in sourcing from the intermediated product space to which it has access, for cover that was suitable and consistent with the body corporate’s needs and instructions.

In the period from 2014-2019, when Aviso arranged for renewal of the policy, the broker provided proof of emails with the body corporate confirming instructions to maintain the previous year’s sum insured and arrange monthly payments for the premium.

AFCA says each renewal document outlines the broker’s effort at the time to source other appropriate policy terms, and new recommendations were made based on the availability of suitable options.

“The documents also specifically list other insurers/products considered, while identifying why they were not appropriate or available (for relevant underwriting reasons, such as the age, construction type or location of the building to be insured),” AFCA said.

AFCA points out the body corporate has specifically acknowledged it knew Aviso did not have access to all products and policies when it engaged the broker’s services to arrange for its residential strata insurance policy.

AFCA says it was therefore up to the body corporate to make its own independent investigations if it believed the broker’s recommendation or advice was not based on a sufficiently comprehensive scope.

“I have seen nothing to indicate the broker’s actions were based on the expectation of any additional financial gain or other benefit for itself, as the complainant has suggested,” AFCA said.

“Nor do I consider its actions amounted to misleading or otherwise deceptive conduct.”

AFCA dismissed the body corporate’s bid to have the case settled by having Aviso compensate it $50,000.

The body corporate says the amount represents the additional premiums it has been paying over the six-year period to 2019 until last year, when it obtained the significantly lower quote from the direct insurance provider.

It says the alternative policy would have cost about $2661.71 in annual premium, drastically lower than the $15,000 it was paying in 2019 for the previous policy. The body corporate’s annual premiums had increased from $8,042 in 2014 to about $15,000 in 2019.

It had been directed by the broker to seek out the alternative insurance provider after its policy, which it has acquired from the same insurer since 2014, could be not be renewed last year.

Aviso notified the body corporate via emails of the insurer’s decision in February last year, parts of which were reproduced in the AFCA ruling.

“We are writing to inform you that the insurer will no longer be underwriting the strata insurance product,” the email says.

“Furthermore, due to a change in underwriting guidelines with their new underwriter, this risk now falls outside [the insurer’s] risk acceptance parameters and they are unable to provide … a new business replacement quotation.

“Further to this we do not have access to another insurer who will be able to offer insurance terms for this building due to the building construction age being 1975.”

The body corporate says because the broker directed it to obtain a direct quote, it was clearly aware of the alternative policy’s existence. The body corporate says it had been relying entirely on the broker to procure a policy that best suits the strata dwelling’s needs at the lowest price.

AFCA says after the old policy was not renewed, the broker had explained to the body corporate that two marketplaces exist in the insurance industry: the intermediated marketplace that was accessible to the broker, and the direct marketplace which was not.

The broker also went on to explain while it cannot access the direct market/distribution channel, it is rarely a market it would recommend in any case “as it has been shown to be an unsustainable and inconsistent offering historically,” AFCA said.

It only made the recommendation as it “had no other option in the broking channel”.

As noted in the AFCA ruling, the broker did point out the direct insurance provider that gave the cheaper quote had entered and left the market several times over the previous 10-15 years.

“The alternative policy was effectively all that was available to the complainant in 2020,” AFCA says.

“In those circumstances, the perceived benefit of a significantly lesser premium does not itself ensure optimum or suitable cover (or would necessarily have done so in preceding years, by comparison with the previous policy)."

Click here for the ruling.