Brokers slam strata reforms for ‘not going far enough’

Brokers slam strata reforms for ‘not going far enough’ | Insurance Business

Brokers slam strata reforms for ‘not going far enough’
Brokers have slammed the NSW Government’s strata reforms for not going far enough, and fear consumers could still be exploited by strata managing agents who receive referral commissions from insurers.

The NSW Government is to legislate a number reforms including introducing a new regime of disclosure and accountability for strata managing agents seeking commissions from third parties.

This comes after concerns that the receipt of commissions from third-parties by strata agent is a conflict of interest as the managing agent and can lead to mistrust between agents and owners.

Reforms, detailed in a position paper entitled Strata & Community Title Law Reform, include requiring the managing agent to disclose at each annual general meeting the circumstances, amount and services provided in respect of any commissions received during the previous 12 months; and requiring agents to obtain at least three quotes for products such as insurance.

Brokers say the reforms are not strong enough to create an open market where customers are fully aware of all the strata insurance offerings in the market and have option of using a broker to access them.

David Summers, senior insurance broker at Markey Group, in an email addressed to the NSW Government, said even with the reforms, customers are still likely to lose out.

“Strata managers are not qualified to organise the insurances on behalf of the body corporate. Strata managers only receive commissions from a minority of insurers.

“This represents a conflict of interest given strata managers’ limited range of products and product knowledge. Cover restrictions and exclusions are not being taken into consideration for example retaining walls, asbestos, flood cover, etc. These are needs of the strata and can be obtained through alternate insurers. These exclusions/conditions do not stop the strata managers from placing business with them. Strata managers don't understand the products they are selling and are not offered commissions through the insurers who offer the correct covers. The client is the one who goes without.”

Summers said that to level the playing field either all insurers pay commissions or none of them; and/or strata managers must be qualified to provide insurance advice.

“This is the only way to remove the conflict of interest and assure the best interest of the owners is at heart,” he added.

Andrew Faber, broking account manager at MGA Insurance Brokers, has little problem with strata managing agents receiving commissions as long as the process is transparent and customers are aware of the products in the open market.

“The main thing is the strata owner receives the right advice. It is about the purchasing of insurance and transparency around whether strata managing agents are managing the insurance and how many quotes they are getting strata owners.

“Strata managers should provide owners with the option to go to the open market. There are plenty of insurers that distribute strata insurance through brokers. As long as the best interests of the customer are being looked after, there is nothing to say strata managing agents can’t receive commissions.”

Faber also raised the question as to whether strata managing agents should be subject to the same Tier 1 and Tier 2 qualifications to give advice.

He suggested that strata managers, like brokers, be held accountable for the advice they give and any mistakes they make in doing so. “Strata managing must be held to the same expectations as brokers,” he added.