It’s not a good look, especially in light of the imminent court action against one of the country’s biggest strata managers for allegedly not properly declaring insurance commissions, but insurance brokers are now in the firing line from their own umbrella organisation.

A recent review of insurance broker’s arrangements with strata managers, called “strengthening transparency and trust in broker agent relationships” saw nine breach notices after reviews of a sample of just seven brokers. 

As well as breach notices, two brokers were referred to ASIC, the Australian Securities Investment Commission, and one reported to NSW Fair Trading. 

And, while the organisation is to be acknowledged for taking a hard look at its members, the Owners Corporation Network (OCN) the peak body for apartment owners is calling for a crackdown by regulators, saying the high hit rate has exposed ‘systemic’ flaws in relationships between some insurance brokers and strata managers.

“Industry bodies need to understand that failing to address systemic issues doesn’t protect their members” said David Glover, Managing Director of Owners Corporation Network.

“It breeds mistrust and invites regulatory intervention. We’ve seen that play out in the New South Wales strata management industry, where years of industry tolerance of bad practices led to significant regulatory reform. That should serve as a warning to every self-regulated profession.”

The Insurance Brokers Code Compliance Committee’s (IBCCC) report examines the oversight of strata insurance arrangements involving brokers, strata managers and owners corporations.

“We reviewed seven brokers that collectively have 1,088 representatives in strata management,” the report’s introduction says.  “The review found weaknesses in representative agreements, remuneration disclosure, conflicts of interest, and oversight of representative conduct and compliance.”

The review found serious shortcomings in four key areas:

• Agreements with representatives that do not meet Code requirements.
• Over-reliance on representatives to disclose remuneration, without verifying that disclosures reach the owners corporation as the client.
• Conflicts of interest not actively managed in the client’s best interests.
• Limited oversight of representative conduct and compliance

“The report reinforces that brokers remain responsible for the conduct of representatives acting on their behalf,” says the IBCCC.

“It sets out our expectations for brokers to strengthen representative agreements, identify and manage conflicts of interest, review remuneration arrangements that may create poor incentives, and verify that disclosures and representative conduct meet Code requirements.”

The introduction to the report notes that brokers and strata managers play a critical role in selecting insurance but these relationships can introduce risks, “particularly when remuneration structures and commercial relationships may influence advice or placement.”

It says that the insurance brokers’ voluntary code of practice “mitigates some of these risks by setting clear expectations for how brokers operate and how they ensure their representatives operate appropriately.”

You can download the report HERE.