Juts back from the SCA (strata managers) convention in Perth where strata insurance commissions were a very hot topic. The removal of commissions is going to hit the small, local strata manager hardest because many of them have based their business models on those commissions – while still being absolutely open and honest about them.
Here is what I have been told:
1. Insurers will not drop their premiums to allow for the removal of commissions because commissions will still exist (to brokers, for instance) and they have to keep the playing field even.
2. If you (or a change in the law) insists on strata managers removing commissions, smaller firms, especially, will increase their fees to compensate while larger companies will find it easier to absorb the loss.
3. You will still be paying commission to a broker or a non-reduced premium to an insurer so clients of small strata management firms will be paying double – no reduction from lost commission plus an increase in fees to compensate for the loss of income.
4. Owners Corps will migrate to the larger strata management companies – who will be cheaper – and it will be the end of the small, local strata managers.
The key to all this is the insurers who, I have been told by industry insiders, have absolutely no interest in reducing premiums when they may still have to pay brokers. With no strata managers and/or brokers, strata insurers would have to pay extra staff to deal with the individual contracts for separate strata schemes. That’s just one of the reasons they would rather pay commission.
If all of the above is correct – and I have to admit I am still getting my head around it – commissions work for everyone. But because they were kept secret for a long time, they seem to be corrupt and unfair.
The problem really arises when your strata manager doesn’t offer you a choice of insurers with a clear expression of what you get for your money. Three quotes from different insurers should take any fears of corrupt behaviour out of the equation, commissions or not.
But make no mistake, some of the bigger players in strata management are already seeing this as an opportunity to offer reduced fees. This could be a good thing or it could be bad – in the same way putting supermarkets in small towns offers a greater selection of goods but reduced service and choice.
Self-managed schemes (which are still about half of those in NSW) will either have to do the leg-work themselves or get a broker to do it for them, so you will still end up paying commission.