The Insurance Council of Australia has published a paper detailing the complexities of strata insurance and ways to improve consumer outcomes, including through greater transparency on fees and commissions.

It also flags the role of brokers in helping owners’ corporations buy appropriate cover.

“Insurance brokers can help explain the detail of an insurance policy and work out what level of cover is needed, as well as assist in the claims process ... an insurance broker plays an important role where a strata manager or strata committee does not have the expertise or capacity to be able to arrange strata insurance, on behalf of the owners’ corporation,” the paper says.

ICA makes 17 recommendations to improve outcomes for strata owners, including the call for full transparency and disclosure on commissions and fees.

“There is a high degree of transparency provided by insurers regarding the cost breakdown of insurance premiums, through invoices submitted to the strata manager or broker, where one is appointed. However, the cost breakdown or invoice may not be passed on to the owners’ corporation in its original form and insurers are unlikely to have visibility of additional fees that are charged to the owners’ corporation and increase the overall cost of insurance.”

The paper says disclosure practices may vary among intermediaries.

“For example, not all state-based laws require strata managers to provide full and transparent disclosure of financial interests and benefits to owners’ corporations, which makes it difficult for them to assess the value and benefit of the strata insurance.

“Given the number of parties involved through the purchasing process, the insurance cost breakdown should be explained in a way such that the nature of the remuneration for services is fully understood by the owners’ corporation (or executive/strata committee) before a decision is made to purchase the cover.”

ICA says it welcomes new laws designed to improve strata insurance outcomes, including requiring brokers to obtain consent from retail clients to receive commissions from July next year, and the expansion of disclosure obligations for strata managers in NSW from February.

But there is still room for improvement. “Full transparency of fees and commissions paid through the purchase of insurance and the flexibility for owners’ corporations to determine the number of insurance quotations to source can give owners’ corporations the opportunity to make informed choices that can lower the overall cost of insurance.”

Click here for the paper.