#18683
eo@ocn
Flatchatter

    Yes, strata manager commissions are a sin.  OCN sees the detrimental outcomes for owners corporations, and opposes this practice on the basis below.  But let me emphasise that it’s everyone’s interest to work together constructively to support managers and owners alike through the inevitable transition. 

    1. It is not transparent.  We prefer a clear fee for service model.
    2. It is a conflict of interest (clear disincentive to obtain lower premiums)
    3. It denies owners the right to good advice *
    4. It denies owners choice (steered towards two insurers paying highest commissions)
    5. It restricts the market (a new insurer, ACE, was squeezed out, and other large and respected insurers cannot get a foothold in this tightly held market)
    6. It restricts competition which is a market-based driver of better cover and lower premiums
    7. It denies owners the claims management advantage that brokers, with their large buying power, can deliver
    8. Commissions can unfairly inflate strata management client income, for no extra work  **
    9. Commission-inflated premium is then taxed – grossed up by FSL, Stamp Duty and GST. 

    *  Case Study 1

    Owners corporation (OC) insurance is placed by strata manager (SM).  OC wins Home Owners Warranty claim, is ready to start $500,000+ defects rectification.  Asks SM if they need to advise insurer (few owners corporations would realise that this is a critical issue).  SM says they can’t give advice, refers OC to insurer.  Insurer says it doesn’t give advice, refers OC to broker.  Broker is not paid by OC to give advice.

    OC is put at risk on two counts.  Firstly, insurance policy fine print states building cover (all building cover) is voided if works are carried out over a certain figure (and makes it almost impossible to get capital works cover).  Secondly, the executive committee members are personally liable if anything goes wrong and there is no insurance in place.

     

    *   Case Study 2
    Complex of 5 villas, insuring via SM, were offered only one insurance option for a decade.  They had only one claim for $220 in ten years.  The claims history was only reviewed when the OC contacted a broker, when they received proper advice to increase their excess which reduced the premium.  Until then they paid the SM 20% commission + $500 fee to the SM’s broker, but were denied choice, service, and advice.  This cost them dearly.

     

    **  Case Study 3
    Nth Queensland insurance premiums increase up to 8-fold following catastrophic weather events.  SM commissions increase accordingly, for no extra work.  Does anyone think that’s fair?

     

    As Dorothy said in the Wizard of Oz “Toto, I have a feeling we’re not in Kansas anymore.”  We’re not.  We’re in a world of increasing sophistication and scrutiny that sheds light into previously dark corners.

     

    Karen Stiles

    Executive Officer, OCN Australia