Stay strong on insurance commission ban – OCN

I have called multiple insurance companies and arranged my own strata insurance.   I can’t see the benefit of paying somebody 20% of the premium to do the same job for me.

With my personal knowledge of the property, I may have negotiated better terms:  One of the questions the insurance company asked was whether we owned personal property.  I said “yes, we have letter boxes”.  The insurance company rep said “no, that’s part of the building”.  It turned out that we did not own any personal property.  i.e. we don’t even have a lawn mower.

Once that question was correctly answered, we were offered our lowest premium for the past five years.

I understand that strata managers rely on that 20%+ insurance commission for their income.  It would be more honest to factor that amount into their monthly management fee.

Charges like insurance commission, “postage, copying, phone calls, stationery”, insurance valuation, income tax returns are strata management fees by stealth.  Instead of putting them in the strata management contract, they put it in the budget and get the owners corporation to approve the budget.

We had roughly $1,400 of budget expenses added on to the $3,600 management contract.  Hence, the real cost of the strata manager was $5,000 per annum.

My view is that the entire strata industry is extremely poorly regulated. While mandatory disclosure of insurance commissions under SSMA 2015 was a start, banning them completely doesn’t necessarily resolve the underlying issue.

The fundamental problem with the strata industry is that it is by construction wrought with conflicts of interest.  As @tina mentioned, commissions are based on the cost of the policy and in my experience many strata managers aren’t necessarily working hard enough to reduce premiums since this would reduce their commissions.  A perfect example of the issue is/was the massive increase in insurance cost due to the combustible cladding issue.  The strata manager wasn’t doing any extra work but in my experience policy costs generally doubled, so therefore commissions doubled.   The strata manager clearly has a conflict here. Why would they try to negotiate down premiums, they’d do more work in order to earn less commission. Once the cladding was under remediation and the policy came up for renewal, how many strata managers negotiated for the policy to be pro-rated based on the completion date of the remediation. In our case I negotiated a clause into our policy before we signed it, that resulted in a refund on the policy once the cladding remediation was completed, pro-rated against the completed portion of the policy term.  You’d expect our strata manager would have seen this outcome and tried to do the same for all their clients, I actually asked their principal if they did so. I was told it was “not our responsibility”.

Strata managers recommend trades to building managers or committee, where is the requirement to disclose those commissions? I know in 3 building in which we own, the OC pays a monthly fee to provide access to a portal where trades etc register, those trades are then recommended or sometimes even engaged by the strata manager.  The trades pay a fee to be on the platform and the owners pay a fee to be on the platform.  I’m a business man, I have no issue with making money from my clients, but where is the guarantee that the trades are being recommended/selected because they are the most suitable for a job, rather than because they pay to play.

A massive conflict of interest is where the same organisation owns the strata management company and the building management company, where are the checks and balances?

The strata manager and the building manager are generally determined by the SC, the owners generally follow the advice of the SC. So when the SC engages in bad behaviour, the strata manager should be expected to provide advice to the owners.  In my experience they generally don’t, because that is a sure way not to have your contract renewed.

In my view the entire regulator structure of strata needs to be completely reconsidered, strata managers often manage and make recommendations in relation to multi-million dollar strata budgets. There needs to be regulation of their activities and just like the finance industry and the legal industry, they need to be appropriately qualified to manage these functions. Strata managers need a mandatory code of conduct, with real consequences to weed out the bad actors.