NSW’s proposed ban on strata insurance commissions could result in small schemes paying more for cover and some strata managers going under, industry sources have warned.

As insuranceNEWS.com.au has reported, NSW Fair Trading has held meetings with consumer and industry groups to consult on a ban following media scrutiny of some strata intermediaries.

While no final decisions have been made, many who attended the meeting say a ban appeared to be a “foregone conclusion” and the impression given was that it would affect insurance brokers as well as strata managers. They also said the intention was to impose the ban as early as the first quarter of next year.

Legislation has already been passed to strengthen oversight of the sector by expanding NSW Fair Trading’s enforcement powers and imposing higher penalties and greater disclosure obligations on strata managers. Managers will be banned from receiving a commission on insurance if the owners’ corporation obtained the quote and arranged for its payment independently.

NSW Fair Trading has declined to clarify the scope or timing of the proposed additional reform.

“NSW Fair Trading is consulting with representatives across the sector, including strata owner and strata managing agent representatives, insurers and brokers,” a spokesman told insuranceNEWS.com.au. “This will inform advice to the NSW government on how the strata sector could transition away from insurance commissions.”

One industry source told insuranceNEWS.com.au the government does not appear to understand the complexity of the issue, and there is no proper process set up to engage with the industry.

“It’s a typical kneejerk reaction and they seem to think that banning commissions will make all the problems raised by the ABC go away,” they said.

“It is moving too quickly, and there will be unintended consequences.”

The source said broker commissions enable a level of cross-subsidisation, and that banning them and switching to a fee-for-service model could make insurance much more expensive for owners in smaller schemes.

“Smaller strata managers that are very reliant on insurance commissions could also collapse,” they said.