Strata commission, fee scenarios failing 'the pub test'

A review of the strata sector is timely, and full disclosure of fees, commissions and other financial arrangements would ensure clients can make informed buying decisions, Strata Insurance Solutions Practice Manager Tyrone Shandiman says.

Mr Shandiman, who is based in Queensland, says he has seen some “questionable practices” around disclosure of fees and commission during more than 10 years specialising in the area.

“When I started, commissions were 20% of base premiums with fees being relatively minor, and brokers and strata managers would share commissions,” he says.

In the softening market a few years ago he started to notice fees and commissions were increasing, he says, while clients were often not aware of the changes because premiums had dropped.

In another example, NSW introduced legislation requiring disclosure of commissions to owners’ corporations, but the requirement applied when annual general meeting papers were issued after the policy had already been purchased.

“I also observed interesting arrangements being entered into between brokers and strata managers, such as profit shares etc, to circumvent the requirement to disclose commissions under the Strata Management Act,” Mr Shandiman says.

“None of the above scenarios in my view pass ‘the pub test’ and full disclosure of fees, commission and other financial arrangements to the committee or owners at the time a quote is issued would prevent such questionable practices from occurring.”

A consultation and discussion paper on strata insurance disclosure commissioned by Steadfast has been produced by consultant John Trowbridge as part of an independent review of the sector.

Mr Trowbridge says current disclosure practices are controversial, partly reflecting the “unusual and unorthodox nature” of arrangements involving multiple intermediaries, while even “high disclosure” practices are not very transparent to owners’ committees.

The discussion paper includes a number of questions posed for feedback, with submissions due by Wednesday next week.

The consultation paper is available here.