On Friday, a roundtable organised by a former NSW strata commissioner and a sustainability expert will explore ways to increase professionalism across the sector. Insurers, brokers and strata managers are invited. The event, said the announcement, is focused on “a sector led approach to a vibrant and confident future of Australian strata.”
Years of strata industry issues around transparency and high fees were recently highlighted by an ABC TV Four Corners report. As a result, some stakeholders, including brokers and owners corporations, are likely sceptical of a “sector-led approach”.
Meanwhile, the NSW government is pressing ahead with strata reforms. A third round of legislation came into force last month, including new rules that aim to protect owners corporations from unfair contract terms.
Also in February came the release of an independent report into high-profile strata management company Netstrata. This firm’s high fees and ownership stakes across the strata supply chain are seen by some stakeholders as an example of industry malpractice. They were the focus of last year’s Four Corners exposé.
The government-commissioned review was by McGrathNicol. The advisory firm found that Netstrata committed “potential breaches” through conflicts of interest and its failure to disclose commissions and obtain multiple quotes. An ABC News report said these breaches mean the firm “potentially broke the law.”
The McGrathNicol report was criticised by both Netstrata and the Australian Consumers Insurance Lobby (ACIL) for very different reasons.
According to the advisory firm’s report document, Netstrata co-operated with the investigation, “considered the breaches listed” and viewed them as “not valid.”
“Most notably, the report acknowledges that 8-9% of consumers in the sample were charged brokerage fees of 47% to 69%—yet fails to assess whether this issue is more widespread across Netstrata’s entire portfolio,” ACIL said in the release.
Insurance Business approached McGrathNicol with questions about ACIL’s and Netstrata’s concerns.
“McGrathNicol undertook the review in accordance with the scope of the Enforceable Undertaking agreed between NSW Fair Trading and Netstrata,” said a spokesperson. “Any inquiries should be directed to NSW Fair Trading who have carriage of the matter.”
IB reached out to NSW Fair Trading.
“The McGrathNicol review is only one component of NSW Fair Trading’s broader review into Netstrata,” said NSW Fair Trading Commissioner Natasha Mann (pictured). “NSW Fair Trading is further examining matters raised in the McGrathNicol report, including the brokerage fees charged by Netstrata’s wholly owned subsidiary, SIS.”
In the written statement, Mann said her department’s newly established Strata and Property Services Taskforce is examining Netstrata matters not considered by McGrathNicol concerning “other separate allegations of misconduct.”
“This includes complaints from impacted strata schemes,” she said.
Mann also explained the rationale behind the sample size.
She said the sample of more than 1,000 strata properties included strata plans that were the subject of complaints to NSW Fair Trading, managed by managers of varying experience levels, of mixed size and used various insurance brokers. The sample also included strata plans where potentially connected entities provided the services and were previously managed by other strata managers, apart from Netstrata.
In statements and news releases, some strata management firms have supported the government’s aim to improve the sector.
“We welcome the reforms and congratulate the Minns Government for their steps towards improving the sector,” said Bobby Lehane, CEO of PICA Group, a strata management firm.
However, Lehane also said much of his firm’s time is spent interpreting legislation and informing owners committees. He said owners committees would need to be trained about the changes.
“Without first delivering education to owners, any changes will create chaos,” said Lehane.
IB reached out to PICA Group with questions, including how seriously the group regards the problem of strata managers overcharging owners corporations. IB also asked why the group thinks educating owners committees should be the first focus when the alleged strata issues concern some strata managers and insurance brokers,
A PICA Group spokesperson said they were currently unable to provide answers.
STORY UPDATE MARCH 18:
Shortly after publication of this story, Bobby Lehane, Group CEO of PICA Group provided written comments responding to IB’s questions:
"We understand there are concerns in the industry, and it is definitely a serious concern in the sector as transparency in strata management is important,” said Lehane. “Strata is about running communities effectively and that requires clear and responsible leadership.”
He cited a “worrying” Macquarie Bank study showing, said Lehane, the strata management sector’s “financial strain after a decade of decline.”
“If we don’t get this right now, we’ll be dealing with much bigger problems down the track,” he said. “We need a fair, workable approach that ensures all parties, including owners, committees and managers understand their responsibilities and can make informed decisions.”
Lehane said education is a big part of this.
In answer to IB’s question about why PICA Group thinks educating owners committees should be the first focus when the alleged strata issues concern some strata managers and insurance brokers, Lehane said:
“Owners committees need the right tools to navigate regulations, budgeting and governance so they can identify fair pricing, ask the right questions and hold strata managers to account.”
Are you an insurance broker? What’s your view of the strata sector’s challenges and the NSW government’s reforms? Please tell us below.
