A strata owners lobby group has proposed changes for the next update of the broking code of practice, including explicit guidance on conflicts of interest.

The Owners Corporation Network of Australia says aspects of the $2 billion strata insurance market raise questions on ethics in the broking industry and the role and performance of the code.

Its submission to the industry’s code review notes ABC reporting last year examined issues such as common ownership of underwriting agencies and brokers, and lack of transparency.

Steadfast has since told shareholders that an internal review found no evidence of conflicts in terms of incentives between its business units, or legislative or regulatory non-compliance, and that it has taken steps to strengthen oversight, the network’s submission says.

“While welcome, these steps appear to be an acknowledgement that more could have been done before the ABC reporting to ensure transparency and demonstrate integrity within its strata insurance distribution network,” it says. “Steadfast is the largest operator in the market but not the only public company that owns both underwriting agencies and brokers, as well as, in one significant case, a large strata management business.”

The network says the code does not articulate what represents a conflict of interest and leaves it to companies to identify if one exists and can be managed, which is “clearly inadequate and out of step with community expectations”.

The group recommends the code include explicit guidance that common underwriter and broker ownership is a conflict of interest that must be fully disclosed, and that any incentives or preferential policies are in breach.

It recognises that brokers provide important services to owners’ corporations and accepts that commissions from insurers are an established part of their remuneration, but it has long called for an end to commissions paid to strata managers.

Strata managers’ receipt of commissions is incompatible with their fiduciary duties and is a conflict that cannot be managed by disclosure, it argues.

The NSW government is considering banning strata manager commissions, which have subsidised the fees paid by owners.

The lobby group says the broker code should explicitly identify the insured person or entity as the client, with fiduciary duties and an obligation to ensure full disclosure, regardless of the role any other parties play in the transaction.

The code review should consider the role of brokers in creating conflicts of interest by promoting commissions and other types of benefit to strata agencies, it says.

“Brokers have led the way in creating business models that result in entrenched co-dependencies and cross-subsidisation of strata management services,” it says.

The network points out that Steadfast chairman Frank O’Halloran told the broking group’s annual general meeting: “There is a misunderstanding that the strata managing agent is the customer.”

The lobby group also says there has been a proliferation of business structures and commercial relationships that have the effect, if not the intent, of obscuring and disguising insurance earnings for strata agencies.

It recommends the code forbid the use of complex legal structures that may be inconsistent with the obligation to ensure clear information is provided so a client understands the services they will receive.

Additionally, it proposes broadening the definition of remuneration for disclosure purposes to capture all financial and non-financial benefits, including profit shares, loans, travel, hospitality, volume incentives and changes in equity or beneficial ownership.

The lobby group’s website points out strata insurance is mandated by states and territories.

“It’s important that the code ensures purchasers are not vulnerable to the poor industry practices that have been highlighted in the media over the past 12 months,” it says.

The submission is available here.