Broker commissions have been labelled “a bit of a rort” at a Senate inquiry into the impact of climate risk on insurance premiums.

The Senate select committee hearing on Friday addressed the recent ABC Four Corners program on strata, which exposed a lack of transparency around insurance commissions and fees, along with other concerns.

Industry consultant John Trowbridge, who was commissioned by Steadfast in 2021 to write a detailed report on strata remuneration, told senators that deals done between strata managers and brokers are “not healthy from a consumer standpoint”.

He said underwriters “as a matter of course” offer 20% commission, “but this is more than brokers need”.

“The brokers should be able to exist on something of the order of 10%,” he said, adding strata managers could charge body corporates directly for the work they do, rather than taking a share of broker commission.

He said some customers are paying as much as 40% through a 20% commission plus 20% broker fee arrangement.

“Mostly you can’t justify that,” he said. “A total of 25%, where 15% to 20% goes back to the strata manager – you can justify that on cost grounds, but I don’t believe it should exist.

“The way in which it is disclosed is confusing in many cases.”

Senator Tony Sheldon quizzed insurers IAG and Allianz on whether a 20% commission is too much, especially given rapid premium increases in recent years, repeating Mr Trowbridge’s earlier comment that 10% would be sufficient.

“It would seem on face value that something needs to be done about this,” Senator Sheldon said. “Having the flat 20% and sometimes 40% ... when it is being turbocharged ... It seems like a bit of a rort to me, to be frank.”

IAG’s intermediated EGM of product, pricing and governance Christa Marjoribanks said brokers need to be paid for the work they do as insurance distributors, but “a percentage mechanism is quite a blunt mechanism on top of a rising insurance premium”. She also stressed the importance of transparency.

Allianz said the 20% figure is “a historic setting”, and chief data officer James Fitzpatrick told the hearing market forces have driven down commission levels in some lines, but not strata.

“We would agree with a lot of the observations around improving transparency,” he said.

Friday’s session also heard from the corporate and prudential regulators, the Australian Competition and Consumer Commission, the Australian Reinsurance Pool Corporation, the Actuaries Institute and Australian Consumers Insurance Lobby.

Further hearings are planned for September 30 and October 1.

Audio from Friday’s hearing is available here.