The battle over strata management insurance commissions has boiled over with industry giant PICA threatening to quit Strata Community Association (NSW) rather than go along with the professional body’s planned phase-out of the kickbacks.

However, SCA-NSW has maintained its commitment to reform, saying that from January 1 next year, as contracts come up for renewal, its members will replace insurance commissions with a fair and transparent fee-based remuneration model.

And consumer advocacy groups the Owners Corporation Network (OCN) and Australian Consumers Insurance Lobby (ACIL) support the SCA position that insurance commissions create fundamental conflicts of interest that harm property owners and undermine trust in the industry.

Insurance commissions of 20 per cent or more have been commonplace in the strata industry for decades. Strata managers have only recently been required to declare them and the insurers routinely refuse to reduce the premiums by the amount of the commissions when strata schemes negotiate policies themselves.

Kickbacks

The fight over transparency in strata insurance has exposed a deep divide in the industry which the New South Wales government could no longer ignore, especially after the ongoing and as-yet unresolved Netstrata scandal and other companies’ kickbacks, inflated fees and commissions.

OCN and ACIL have called on the government to push ahead, saying the controversy underscores how unreliable industry-led reform can be.

“When the largest strata manager in the country threatens to withdraw from its own professional body over transparency measures, it sends the wrong message to consumers, regulators and policymakers,” they said in a joint statement issued last week. “It highlights why government leadership on this issue is essential.”

PICA Group’s managing director and CEO Bobby Lehane says the SCA has moved forward without proper consultation with its largest member and that they are on completely different pages.

“If your peak body doesn’t represent things that are important to you, that you believe are important to the sector, then what’s the point?” he said.

PICA says the SCA is struggling to understand the complexity of larger organizations and that mandating change by January 1 might work for smaller operators managing 50 plans, but not for companies managing 11,000 properties.

PICA’s central claim is financial: the company fears that removing insurer-paid commissions could shift up to $150 million in annual costs onto consumers. Lehane argues that insurers will fail to pass on savings to consumers, as companies inevitably optimize profitability.

“Consumers should not bear the burden of insurer distribution costs. Removing insurer payments without a sustainable replacement mechanism risks increasing costs for owners and destabilizing the strata management sector,” he said.

Fixed fee alternative

PICA proposes an alternative whereby a fixed fee, paid by insurers and adjusted to the consumer price index, replaces commission-based payments. Under this model, owners could still pay an equivalent fee directly if they choose.

SCA-NSW has acknowledged feedback from members but maintains its commitment to reform, specifically a voluntary phased replacement of insurance commissions as the sector transitions toward a fair and transparent fee-based remuneration model, from January 1 transitioning to a commensurate fee structure over a three-year period as existing management agreements lapse.

This approach aligns with the NSW Government’s direction for the NSW Productivity Commissioner to review the market impacts of prohibiting strata managing agents from accepting insurance commissions.

SCA-NSW President Robert Anderson says this reflects a balanced approach.

“We’ve listened carefully to our members,” he said. “Our focus is on supporting a responsible, well-paced transition that protects both businesses and the communities they serve. By taking a voluntary and phased approach, we’re giving the industry the time and flexibility needed to evolve sustainably while maintaining public confidence.”

The SCA claims it surveyed members before the initial announcement and that many members had already transitioned to a fee-for-service model before the public announcement.

Case Against Commissions

ACIL and OCN’s say their position against insurance commissions is supported by fundamental principles of consumer protection, market transparency, and professional ethics.

The most compelling argument against commissions is the inherent conflict they create. When strata managers receive payments from insurers, their financial incentive becomes misaligned with their fiduciary duty to owners. This creates three specific problems:

• Managers may recommend policies based on commission rates rather than coverage quality or price competitiveness
• There is reduced motivation to negotiate better terms with insurers, as higher premiums often correlate with higher commissions
• Owners cannot be certain whether insurance advice is in their best interest or influenced by undisclosed financial arrangements

These are not theoretical concerns. As ACIL and OCN noted, there is mounting evidence of malpractice in how strata insurance commissions are handled, with several high-profile cases currently under investigation.

‘Fear mongering’

ACIL and OCN also describe PICA’s claim that banning commissions will transfer $150 million in costs to consumers as obvious fear-mongering and that this argument contains several logical flaws:

• Insurers’ costs are already embedded in premiums that owners currently pay
• Commissions only obscure who benefits from those payments, they do not eliminate the costs
• Transparent fee-for-service arrangements allow owners to understand exactly what they are paying for and to comparison shop
• The SCA has secured commitments from brokers and underwriters to pass on savings when commissions are eliminated

Rather than increasing costs, removing commissions creates market pressure that should drive costs down through competition and transparency.

PICA’s threat to withdraw from the SCA demonstrates precisely why voluntary, industry-led reform is insufficient. When the largest player in the market can hold reform hostage by threatening to leave its professional association, it reveals that self-regulation cannot address fundamental structural problems.

The controversy validates John Trowbridge’s independent report, which was critical of opaque commission-sharing arrangements. After intense media scrutiny throughout the past year, the fact that the industry’s largest company is still resisting transparency reforms indicates that stronger regulatory intervention is necessary, say their critics.

As ACIL and OCN have stated, when voluntary measures prove inadequate, government leadership becomes essential.

Praise

Meanwhile NSW Fair Trading Commissioner Natasha Mann has praised theSCA’s position in a speech to the body’s convention:

“I want to recognize the leadership that SCA NSW has shown in announcing a transition away from accepting strata insurance commissions. The leadership SCA NSW has shown on this issue makes clear that you want to be part of the solution, helping to restore confidence, protect the profession’s standing and ensure we have a pipeline of talented professionals wanting to join the sector,” she said.

“These efforts deserve recognition and support, not resistance from those who benefit from opaque practices. The strata management profession, like other fiduciary professions, must hold itself to standards that prioritize client interests above personal financial gain.”

OCN and ACIL agree calling on strata managers who want to do the right thing to fill the void created  if PICA quits the SCA.

“The SCA needs more members who back transparency and professionalism. PICA no longer supports that direction,” they said. “Now is the time for other strata managers to step up and fill its shoes and show consumers that integrity and accountability truly matter.

“This is more than a policy debate about payment structures. It is a test of whether the strata management profession will prioritize consumer interests or continue protecting arrangements that serve industry participants at the expense of those they are meant to serve.”