Strata insurance is convoluted and property owners face a lack of transparency around commissions received by their management companies and fees paid to brokers, a consultation paper that’s part of a Steadfast-commissioned independent review says.

Reviewer John Trowbridge says current disclosure practices are controversial, partly reflecting the “unusual and unorthodox nature” of arrangements involving multiple intermediaries, while even “high disclosure” practices are not very transparent to owners’ committees.

Current arrangements include practices where the broker commission is mostly passed back to the strata manager, while a separate broker fee is added to the total cost.

“The market structure for strata insurance is different from that for all other insurances because of the multi-owner nature of strata properties and the participation of strata managers in the chain from insurer to client,” Mr Trowbridge says.

“Insertion of the strata manager between the broker or underwriter and the owners has the effect of transforming the financial arrangements as between the owners and the other parties.”

The paper identifies that, as the strata sector has grown and demands increased, property managers have become more willing to use brokers, while both brokers and strata managers have their remuneration requirements.

Feedback is sought on current practices, definitions, the potential for more standardised disclosure formats, whether the new National Insurance Brokers Association (NIBA) Code of Practice will resolve shortcomings and other issues.

The consultation marks the first phase of the independent review of strata insurance practices. Phase two will look at possible reforms to remuneration and other intermediary practices and phase three will examine competition, affordability and availability of strata insurance.

Mr Trowbridge says the first paper, in concentrating on disclosure, offers no judgments or assessments about remuneration or other aspects of strata insurance intermediary practices.

“Although remuneration is a pressing issue in the eyes of some market participants and observers, I have concluded that responding to disclosure issues is needed irrespective of any possible reforms to strata insurance remuneration or other intermediary practices,” he says.

Steadfast CEO Robert Kelly says in a foreword to the paper that the goal of the process is to identify meaningful initiatives aimed at overcoming structural issues that are of concern to both the Steadfast Group and other participants in the market.

“Steadfast believes that the market is to some extent dysfunctional through its value chain from customer (lot owners) to strata managers to brokers to underwriting agencies to insurers,” he says. “Most of the issues under question have arisen gradually through the historical evolution of the market.”

The closing date for submissions is April 20.