Strata insurance remuneration involving commission and fee combinations that are unclear to property owners should be phased out in favour of clearer alternatives, consultant John Trowbridge says in a report released as part of an inquiry into the sector. 

The report, commissioned by Steadfast, says inherent conflicts of interest are significant where the commissions and fees are agreed between the broker and strata manager, while rarely involving input from owners corporations. 

“They represent risk and temptation for strata managers and brokers to put their own financial interests ahead of their owners corporation clients and there is anecdotal evidence that that is occurring in some segments of the market,” Mr Trowbridge says. 

Issues highlighted in Phase 2 of the strata inquiry focus on the commission rebate/broker fee system, where the broker generally passes most or all of the commission to the strata manager and then a fee is paid to the broker to cover its cost of services. 

Mr Trowbridge puts forward alternative models including commission only arrangements, split between the intermediaries, and fee-based models. In a previous report for the inquiry’s first phase he recommended improvements to transparency including disclosure templates. 

Strata Community Association (SCA), which in 2020 formed the SCA National Strata Insurance Taskforce (SCANSIT), says it doesn’t support the Phase 2 recommendations. 

“SCA and SCANSIT seek recognition of existing consumer protections provided through many state and territory regulatory regimes, being duty bound to act in the best interests of strata committees, SCA’s Code of Practice and the choice of at least three remuneration models that exist and are currently operated within the market,” a spokesman told insuranceNEWS.com.au.  

SCA has committed to improving transparency and disclosure to ensure consumers are educated and understand the insurance products they are taking out and each party’s role in the supply chain, and will review the impact of these changes in 2024, he says. 

The review Mr Trowbridge is completing has been divided into three phases. The next report will examine competition, affordability and the availability of strata insurance. 

Mr Trowbridge has worked as an actuary, consultant, executive, company director and regulator, and has been involved mainly in financial services, with an emphasis on insurance-related businesses.  

See Analysis.