COMMENT: There’s an arm wrestle over insurance commissions going on between strata management giant PICA and Strata Community Association NSW, the industry’s professional body, and it could split the sector in two.

PICA, the largest strata management group in Australia, has said it will consider quitting the SCA rather than follow the professional body’s directive to its members to phase out strata insurance commissions.

NSW Fair Trading has asked the state’s Productivity Commission, in the wake of last year’s Netstrata insurance commissions scandal, to examine who will benefit and who will suffer if strata insurers are prevented from giving commissions to strata managers for bringing them business.

The obvious answer is that many strata owners will benefit and some strata management firms will suffer. It’s not quite as simple as that, but SCA-NSW wants to get ahead of the story and has told its strata management members to phase out insurance commissions over a three-year period starting in January next year.

Why three years? Because that’s the mandatory limit on NSW strata management contracts, after which they must be renegotiated.

So why is PICA threatening to break ranks? Partly because it thrives on vertical integration whereby its allied companies provide all sorts of services to strata schemes. Insurance commissions can be a major strand in that complicated web of preferred suppliers, discounted deals and hidden benefits.

Also, PICA, which is part-owned by Japanese property management giant Nippon Kanzai and Irish financial services company Fexco, is known for its aggressively competitive pricing policies.

For the past few years Pica has been swallowing up smaller strata management firms and, operating on tight margins, could see the removal of insurance commissions undermine their current business model.

Pica has been one of the property services firms that have led the way in dragging strata management out of the dusty old image of the small family firm into the corporate sunlight – not always with the intended effect.

I recall about six years ago being invited to PICA’s head office after I had written something less that deeply complimentary about the company. I was shown a 3D “street map” on a giant TV screen, purporting to be the PICA city. 

It looked a bit like a rough version of the video game Grand Theft Auto, only without the drug dealers and prostitutes.

The legal services were in one “building” and the strata management division was in another. Maintenance facilities were in yet another coloured block and debt collection was up a dark alley. I jest. There were no dark alleys.

For a brief moment, I thought they were showing me the plans for a new city block were developing, with real buildings and roads. Then I realised this was merely a graphical depiction of how their subsidiaries and associated companies were separate but inter-connected.

I remembered that CGI city when I read that the current PICA general manager and CEO Bobby Lehane said the company might pull out of SCA-NSW rather than submit to its plan to end insurance commissions.

With a claimed 185,000 properties under its management, PICA’s threat to quit SCA-NSW is like Melbourne threatening to secede from Australia. 

But if SCA-NSW backtracks, it would signal that, for all the handwringing of the past year or so, nothing has changed.

By the way, it seems Netstrata is still under investigation by Fair Trading.  Just this week we sighted a heavily detailed questionnaire sent to one client who had raised a complaint.

In the meantime, SCA-NSW has grown closer to its grass roots, but this may be the first sign of a corporate backlash. In the strata wars, the Empire is starting to fight back and the street-fighting in this won’t be fake.

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