Strata law reforms that strengthen consumer protections are likely to affect brokers more than other players in the market, according to Finity.

“We fully expect to see legislative and other regulatory changes in this space,” the actuarial firm says in an annual report on the insurance industry.

“Within the distribution chain, it appears to us that the strata managers and the brokers are most vulnerable to legislation and regulatory changes.”

Scrutiny on the strata sector, especially around fee arrangements, intensified after an ABC report earlier this year on Netstrata, a NSW company that has a wholly owned broking business.

“[This year] has seen strata insurance, particularly the distribution chain, taking a very high profile … The core of the problem is conflicts of interest, with undisclosed commercial relationships (including common ownership) and with conflicted remuneration that follows,” Finity says.

In NSW, the government introduced strata laws in September to improve disclosure and toughen penalties.

Finity says strata underwriting agents are likely to feel less strain from the law changes.

“With sensible operational and compliance activities, they should not be fundamentally challenged. The insurers underwriting the agency businesses are a further step removed, although the growing focus on insurers being responsible for the activities of their agents may be a cause of grief.”

Finity’s Optima report this year classes strata as a separate business line for the first time.

It says the strata market now exceeds $2 billion in gross written premium and will continue to grow this financial year.

Average premiums have increased by 50% or more in the past few years, according to the report.

It says strata insurance is a relatively expensive product to deliver, and broker commissions average about 20% of gross premium. Reinsurance costs are significant due to high sums insured. Finity estimates reinsurance premiums average about 20% of gross premium.