Need to know
- Late last year, CHOICE revealed widespread backroom dealings between strata management companies and insurance brokers
- A combination of hidden commissions and fees can push premiums up by as much as 40%
- CHOICE and a range of allied organisations are calling for a government inquiry into the strata insurance industry
In October last year, a CHOICE investigation into the strata insurance industry revealed widespread backroom dealings between strata management companies and insurance brokers that secretly ratcheted up costs for unit owners.
With most body corporates and unit owners disengaged from the process of obtaining insurance for their building, outsourced strata management companies and insurance brokers concocted their own self-enriching strategy.
It generally works like this: The strata management company goes to a favoured insurance broker to find cover for the building, and the broker receives a commission from the insurance company for selling the policy – generally around 20% of the premium.
The combination of commissions and fees can push premiums up by as much as 40%
The insurance broker then passes this along to the strata manager, and the strata manager turns around and pays the broker a fee to make up for the lost commission.
Everybody makes out except unit owners, who are generally oblivious. But the combination of commissions and fees can push the premiums they pay up by as much as 40%.
Earlier this month, an ABC Four Corners program, titled The Strata Trap, investigated conflicts of interest in strata management – in insurance and other areas – and the lack of government intervention and consumer protections for consumers. The program exposed how entrenched the problems are.
CHOICE and allies call for government inquiry
Now CHOICE and a range of allied organisations, including the Financial Rights Legal Centre and Financial Counselling Australia, have issued a joint letter to the federal government calling for a full-scale inquiry into the strata insurance sector led either by the ACCC or the Productivity Commission.
The letter cites 146 specific instances in which strata managers appointed insurance brokers without the informed consent of body corporates, causing significant financial harm to strata title holders. But there are likely many more instances out there.
Strata management is in need of root and branch reform – it's expensive for everyone and doesn't seem to be working for anyone
Mortgage Stress Victoria CEO Nadia Harrison
Karen Stiles of the Owners Corporation Network of Australia, one of the signatories of the letter, says "We are witnessing an alarming trend in strata management practices that are not only unethical but potentially unlawful. It's time for the government to step in and ensure that there is a robust framework protecting consumers who are currently at a disadvantage. The lack of transparency and accountability in the current system has left many of us vulnerable."
Acting CEO of the Financial Rights Legal Centre, Alexandra Kelly, says "Strata managers should not be getting paid by an insurer for recommending their products. Conflicted remuneration should not be allowed to continue. We want the ACCC to take a good look at this industry, and state governments to be vigilant in making sure consumer rights and interests are upheld and protected."
The scope of the proposed inquiry would include reviewing industry practices, examining regulatory frameworks and improving consumer protections.
CEO of Mortgage Stress Victoria Nadia Harrison says it's time to wipe the slate clean and start over. "Strata management is in need of root and branch reform – it's expensive for everyone and doesn't seem to be working for anyone."
Stock images: Getty, unless otherwise stated.
