Steadfast and AUB may experience downward pressure on strata commissions amid heightened regulatory scrutiny, Morningstar says.

The NSW government has passed legislation to improve strata insurance remuneration transparency for owners’ committees, and the sector has stressed the importance of clear disclosure following criticism of opaque arrangements and excessive intermediary costs.

“Improved fee disclosures could make it easier for strata communities to compare fees and pressure strata managers to find cheaper insurance or take less in commissions and fees,” Morningstar says in a research report. “This fee pressure is likely to be pushed onto brokers.”  

Shared financial interests between brokers and strata managers probably need phasing out, the report says. 

“We do not expect this to result in widespread switching of strata managers and brokers, but it could add pricing pressure.”

Steadfast has reported that an ongoing review of its strata broker and underwriting business practices – after it commissioned the sector-wide Trowbridge report – has found no evidence of preferential placement of insurance from the company’s brokers to its underwriting agencies.  

“Findings to the contrary would strengthen calls to dismantle the vertically integrated models of both Steadfast and AUB Group,” Morningstar says. “We think competition in the market makes this unnecessary and there is a low probability of it occurring.”

The report says Steadfast has equity stakes in brokers within its network, but no ownership in many, which supports competitive tension. Brokers risk losing customers and tarnishing their reputations if they opt for more expensive insurance to favour the parent company, it adds.

From Insurance News magazine: After a run of controversies and bad news stories, what next for the strata market?