In this article, we look into some of the general questions owners may have surrounding strata insurance commissions within the owners corporation industry in Victoria. In particular, we discuss what owners corporation managers should be doing to establish and maintain open and transparent disclosure with owners.
Table of Contents:
- QUESTION: Our new strata manager’s SCA contract states the OC manager receives a percentage of the insurance premium as a commission. Does that preclude the OC from organising their own insurance?
- QUESTION: Our strata insurance runs out very soon, and our owners corporation manager has not paid for insurance or arranged an AGM. Where does this leave us?
Question: Our new strata manager’s SCA contract states the OC manager receives a percentage of the insurance premium as a commission. Does that preclude the OC from organising their own insurance?
The committee have signed a contract of appointment for a new strata manager. The strata management company uses the Strata Community Association contract of appointment, which includes clause 1.3 relating to insurance fees and commission.
The owners corporation manager may receive or retain, as a commission, a percentage of the base premium payable by the owners corporation on the placing of insurance or the insuring of risks by the owners corporation.
Does this signed contract preclude the committee from obtaining and handling the strata insurance renewal?
Answer: If the owners corporation is considering not using the strata manager’s services for their insurance needs and is planning to engage an insurance broker or another party, this should form part of your contract negotiations.
In this instance, the contract condition states that if the insurance commission is less than 15% of the base premium paid by the owners corporation, the owners corporation will pay the manager a fee, the difference between the commission received and 15% of the base premium.
It’s important to highlight that this condition applies regardless of the involvement of the strata manager in arranging the insurance. For instance, even if the owners corporation decides to secure their insurance without the strata manager’s involvement, there is still a requirement to pay the strata manager a fee equivalent to 15% of the base premium as a management fee.
If the owners corporation is considering not using the strata manager’s services for their insurance needs and is planning to engage an insurance broker or another party, this should form part of your contract negotiations.
Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 1300 554 165
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.
This post appears in the March 2024 edition of The VIC Strata Magazine.
Question: Our strata insurance runs out very soon, and our owners corporation manager has not paid for insurance or arranged an AGM. Where does this leave us?
Our strata insurance runs out very soon, and our owners corporation manager has not paid for insurance or arranged an AGM. They have stated they need to obtain three insurance quotes before holding the AGM. We are not sure why this has been delayed.
All phone calls and emails about the matter are ignored. When I finally reached the strata manager, they were very aggressive. Where does this leave us?
Answer: You are under no obligation to do business with the strata manager’s broker or insurer.
Firstly, when it comes to strata insurance, it is important to know there is nothing obligating you to do business with the strata manager’s broker or insurer. If you feel it is no longer in your best interest for the strata manager to arrange your insurance, consider arranging the insurance separately.
In Victoria, most strata management contracts include a condition that requires a 15% fee to be paid to the strata manager. This condition often locks you into the strata manager’s chosen broker, making it financially impractical to explore alternative insurance options. Be aware of this limitation when considering your insurance choices and try to negotiate the removal of this condition when negotiating your contract renewals.
Likewise, if your strata manager is unresponsive, ignores emails, or exhibits aggressive behaviour, it may indicate it’s time to seek a new strata manager who prioritises providing excellent service.
Generally, insurers will issue renewal quotes 14 days before expiry unless there is a specific reason they cannot issue the quotes beforehand. If the strata manager is arranging quotes and submitting them to the committee for approval,this needs to happen before the policy expires and a reasonable service expectation in the industry is to receive your quotes 14 days prior to expiry.
In the event of delayed quotes, it’s important to understand the underlying reasons. Seek further explanation from your strata manager and broker. Potential causes of delays may include:
- Late initiation of the quoting process by the broker or strata manager.
- The strata manager has the quotes but delayed their issuance to you.
- The insurer failed to provide the renewal quote within the provided timeframe.
- Delays result from a lag in providing necessary information.
To gain a clearer understanding of the situation, consider the following steps:
- Check the date the quote was issued. If it predates the date provided to you, it suggests a delay on the strata manager’s part.
- Request the strata manager or broker to provide documentation, such as emails sent to insurers requesting quotes and email responses from insurers (those documents should show the date the quote requests were sent). This will help establish a timeline and shed light on any potential delays.
I recommend you consider seeking assistance from an alternative insurance broker who can guide you in dealing with the issues you face with your strata manager. It is evident your current insurance arrangements are not adequately serving your interests. By consulting with an alternative broker, they can thoroughly assess the situation, offer guidance, and help you explore better alternatives that align with your needs.
Tyrone Shandiman
Strata Insurance Solutions
T: 07 3899 5129
E: tshandiman@iaa.net.au
Disclaimer: This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances and the specific coverage afforded under their policy wording. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
This post appears in Strata News #657.
Read next:
- NSW: Q&A Strata Manager Won’t Admit to Insurance Commissions
- Why are Strata Managers so difficult to get along with?
Still after more information about insurance commissions, even more general articles about strata insurance or information about strata living in your state or territory? Visit our Strata Insurance OR Strata Information Pages by State.
After a free PDF of this article? Log into your existing LookUpStrata Account to download the printable file. Not a member? Simple – join for free on our Registration page.
I believe that Strata Body corporate managers should not be granted the privilege of recommending their in-house preferred insurance company due to 30% of the premium commission as they are just the go between without the expertise and often the answer is one word NO which may or maybe not be the correct answer to a question as they are not qualified to answer it. There is no transparency regarding commission!! . Here in Victoria we still appear to be managed by cowboys who have special portals to tradies that live (in our case 1-2 hours away) never anyone local which makes me totally suspicious given when our owners corporate manager signed that we would use their insurer and signed that we as a OC block will give 18 months minimum notice if we were not going to stay with the Strata company – this ofcourse includes the insurance and I believe our fire insurance too. Our AGM is always well away from the insurance renewal time and we do not gain a copy to even read and certainly there is never any discussion on the topic. Let’s move on is a constant at our poorly attended AGM’s (My name has been known to mysteriously drop off the notification list) but manage to be reinstated so that I can pay by quarterly fees. All maintenance has been given an overhaul so companies ?? Owner /operators tradies that we are not familiar with now attend. What their standard of work is like is hard to say as nothing is explained and often the cost unknown just like the time of attendance for what job?? until an AGM which shows what they were paid. all too late and just glossed over
Hi Gillian
We have a free webinar session coming up in June all about insurance commissions. The session will be promoted via our weekly newsletter. If you are not already a subscriber, you can subscribe (again free) here.
Commission for insurance are wrong – plain and simple. They are a conflict of interest and a moral hazard. One of our managers increased our cover for 8 ordinary units by $180,00 between over 5 months, meetings without the knowledge of the OC, increasing the premiums and therefore his commission. I only found out through the Consumer Affairs Mediation process. I suggest anyone experiencing huge increases in premiums ask to inspect the OC finances. The manager is compelled to allow this.
Commissions also encourage managers at the AGM to “hint” to at the need to increase insurance and owners usually agree out of fear of being underinsured. Finally, I think it is impossible to get an unbiased opinion when manager are AR’s and also get a commission. Because of the complexity of Strata Insurance, manager have enormous power to influence insurance decisions in their financial favour.
The excuse of keeping fees low is not proven. I suggest owners divide the % commission into the premium cost. The resulting amount divided among the number of owners will be quite small. Choose to pay the and control your own insurance through a reputable broker.
Firstly, I wish to thank Jonathan for a very reasonable post and commentary on alternatives to the quoting and renewal process that Owners Corporations may be unclear about. This is particularly relevant when we consider that a Strata Manager, or broker for that matter, may only be authorised to deal with certain and limited insurers that they have a commercial arrangement with. It may not be practical to canvass the entire insurance market year on year, but it is important to recognise that there are limitations that intermediaries are subject to and the Owners Corporation may be worse off by not considering alternatives.
There is one glaring mis-representation in Jonathan’s post however, that reads:
“According to information from a reputable insurance broker in the industry, under this arrangement, the commission paid by the insurer is at no additional cost to the Owners Corporation.”
This is blatantly untrue in any reasonable understanding of how commission payments are made.
Commission payments are calculated as a percentage, overwhelmingly at 20%, of the base premium. This is absolutely in addition to the actual cost of insuring the property and is passed on to the Owners Corporation (and Owners) to pay.
Statements like this are dangerous, misleading, and do not assist in providing transparency in the payment of commissions that the Owners Corporation need to fully consider. It should certainly make one consider just how ‘reputable’ an insurance broker it is if this is their understanding.
Thank you Richard for your feedback and kind words.
With respect to your comments in relation to ‘commission paid by the insurer is at no additional cost to the Owners Corporation’. Please be mindful, as indicated in the article, this was information provided to me directly from the insurance broker, this was not my personal opinion or view. Further to this I did add that ‘It’s important to keep in mind that this may not be the case with all insurance brokers’.
Always open for feedback and discussion around the topic, if you would like to discuss further please do not hesitate to make contact with me.
Regards,
Jonathan
“Secret” Insurance Commissions? I don’t think so!
I think there is best practice (do not accept commissions and if you do – they go back to the Lot Owners AND are cleary shown in the AGENDA) and there is actual practice. Accepting a commission for being a Authorised Representative is a CONFLICT of INTEREST and the argument that if they did not get the commission they would have to charge more for their time misleading.
A manager is paid for work done by owners and then they earn commisions from contractors and insurance and fees charged to other bodies – as stated by Consumer Affairs -at the moment it can cost up to $50 for a simple photocopy of registered owners..
It is certainly not transparent just how much a Manager earns by being a Manager..
This is the information that the Owners need to know before deciding that they would need to make up the difference if commissions were aboloshed,
As a broker in Victoria, I face the above noted issues on a daily basis. I manage a lot of strata policies and find myself battling with BCM’s every renewal.
You see, as a broker, I refuse to pay any commissions to a BCM. I have studied and obtained my qualifications, spent copious amounts of time understanding the product and the insurance market and negotiation the placement, ongoing management and claims. Why would I pay a BCM purely for bringing me the business? I prefer to deal directly with the committees for full transparency as often BCM’s will not put our terms forward if they know there isnt anything in it for them.
The reality is, most BCM’s are authorised representatives or agents of certain strata insurers. They undertake very, very basic training and are then authorised to sell those insurers products. This results in a huge conflict of interest. How? As an authorised rep or agent of the insurer, the BCM is obligated to act in the best interests of the insurer, which is at odds with what the OC is paying them for.
So I earn my commission (10-20%, paid by the insurer) and I also charge a small broker fee. In exchange for this, my client receive a truly independent and unbiased broker to obtains the best possible terms, understands the coverage and policy exclusions, terms and conditions, can negotiate directly with the insurers and is experienced and involved with the claims management. Why would you allow your BCM to purchase your insurance when they cannot do any, if not all of that.
I totally agree. Like you l was a broker who studied for my professional qualifications and spent my career working in Canada. I also taught insurance for the Insurance Institute of Canada. Our building had an expensive equipment breakdown so we claimed under our breakdown policy. [Removed by Admin] denied the claim but eventually paid it after l countered it was sudden and accidental, plus we had a maintenance contract and the breakdown was impossible to predict. Our strata manager who is àn excellent property manager had no Idea what l was talking about. It is beyond belief that we have a system which allows people to be an insurance agent, provide quotations with multiple companies,get paid the same commission as a broker then claim that legally they do not have to provide advice. All we asked for was their recommendation as to which policy they felt was best for us. after they presented us with 3 options.This is morally wrong and the law needs to be changed. It’s akin to a dealership selling a brand new car then refusing to repair it under warranty because they only sell the car. A short sales course provided to property managers who are then able to sell their products is just not acceptable. What the heck is a property manager who represents multiple insurance companies if they are not brokers!! It seems to me they have no interest in their client’s only in the money they receive
Hi Peta, I’m hoping you can help me as you are a broker and I have no idea how to navigate the strata insurance space.
I’m in ACT and I’m not happy that the strata company no longer state that they get a 20% commission for the insurance policy they sell. But they use to describe this. What is more concerning is that in 2019 they change [insurers] and during the meeting they stated that flooring was covered. Then they decided to increase the excess of “office bearer liability”, the reason was to protect the committee in the case that people will trip over concrete. However the concrete have been a trip hazard for years and the only recent change is that me and my family have decided to sue the Owners Corporation but in our application I written how I feel they were corrupt.
I feel the committee was trying to protect their their asses but lack the integrity to state so.
In the lastest meeting when I question how come there is no vote for each of the different policy [the] Strata stated how all the policies was mandatory. I can only ask the broker general question and he had previously mention how they source insurance base on the instruction of the strata manager.
In the 2021 meeting the committee chairperson is now stating how the increase to the “office bearer liability” is because [the insurer] can sue them. He also states that the committee and the OC have no say in the cover that is being purchased and also the excess that was choosen.
[The] Strata’s employees is stating how all the policy is mandatory however the act clearly states only building insurance and public liability is required. The strata manager proceed to utilise a section of the act, but that section goes as far as describing what a “building” is.
With the way things are going I feel ALL unit owners are force to accept the entire quote. with absolutely no votes for any aspect in the insurance quote.
We feel the strata manager have literacy issues or just wants to sell an expensive insurance cover. She refuse to give any evidence to why all those items are “mandatory” and the section of the law she cites states how the owners corporation must take out enough insurance to ensure the entire complex can be rebuilt in the worst case scenario.
Do you happen to know if owners can seek out insurance without the strata company?
Do you know if the insurance company forces the OC to take out office bearer liability, volunteer insurance, legal defence etc?
Is it possible to get some sort of report to state the minimum fair amount of cover that is needed?
Do you know if there is any portal or website where I can find brokers independent of the strata company?
I’m asking these details because in the future I maybe taking my OC to ACAT again and if I do I want to force transparency relating to insurance.
I dont mind too much of these covers. What I mind is that they dont in a transparent way let all unit owners know and allow everyone to decide what they want in the cover.
Our strata manager recently presented us with 3 insurance renewal questions. We asked the manager which one they recommended as we have no Idea how to choose. The manager who is our insurance agent replied that she doesn’t give advice. She receives 20% commission for handling our insurance. Please could l have your comments as we are lost.
Hi Shaun
We have received the following reply to your comment from Frank Higginson, Hynes Legal:
To me the answer is to get advice from someone who is qualified to give advice. That is someone with the right qualifications etc
And I would observe that it isn’t a secret commission if it is disclosed (as is obviously the case here!)
Firstly thank you for replying to my email. What really bothers me is we have a system in place which allows strata managers to sell insurance products, receive in our case over $3000 commission for a product they are not competent to advise us on. I don’t blame the managers for selling insurance and using a legal loophole to say we can’t provide advice however we are placed in a position where we have to pay another person to comment on a product that in effect the seller says they don’t understand.All we asked the manager was you gave us three quotations, which one do you represent. and they refused to answer.
It’s the insurance brokers job to explain insurance…not the strata manager
Hi Carol so what is the strata manager if not a broker. They were able to provide 3 quotes with different underwriters so to me after 40 years as a broker that makes them a broker. If they walk like a duck, waddle ànd quack they are a duck. How did we ever arrive at a situation where people are paid thousands of dollars to sell insurance they don’t understand and it’s legal
Over the last 2 or 3 years, I have been asked to review the strata insurance arrangements for a large number of QLD complexes, ranging in size from the small ‘6-packs’ up to those with more than 100 units.
I feel I have covered enough complexes to conclude there are 4 key risk areas in relation to strata insurance…risks which I would regard as both systemic and endemic across QLD:
1: Unreliable, biased Valuations. These are the foundation of strata insurance, and if incorrect…everything else is compromised.
2: Unreliable, excessive annual uplifts for those years between Valuations. These uplifts, generally starting at 5% and often rising to 8%, are bad enough for the first year; to keep offering them year after year notwithstanding all of the historical data confirming they are grossly excessive, does not reflect well on either the Insurers or their Authorised Representatives. The sooner ASIC looks closely at this practice, the better.
3: Non-Competitive Quotes Sourced by Body Corporate Managers (BCM) from a limited number of Insurers, resulting in the same Insurer being accepted year after year. Some BCMs seem to have no difficulty sourcing one or two non-competitve quotes from Insurers other than those the BCM is registered with as an Authorised Representative and from whom they then take the full 20% commission. Given the competitiveness between Insurers eager to share in such a lucrative market, it is surprising that any one Insurer would be able to supply the most competitive quote year after year after year, and for all of the clients of that one BCM. It is also not surprising then that nearly every time I’ve been able to persuade a Body Corporate (BC) to take the insurance off their BCM and go to a truly independent Broker, that Broker has been able to source, from a wide range of competing Insurers, a substantially cheaper premium than that offered by the their normal Insurer. The sooner ASIC takes a look at these arrangements, the better.
4: Excessive Premiums @ 20%. I understand it is standard practice with the Insurers to pay 20%. It then becomes a question as to who gets to divvy up this 20%…the Broker, the BCM, or both. It is worth remembering here that the 20% comes off a very large base: strata insurance covers the whole building, and the Building Sum Insured (BSI) generally runs into millions of $$$s. With a Premium Benchmark of around $800 to $1000 for every $1M of BSI, the Premiums generally run into thousands of $$$s every year…and 20% of those Premiums adds up to a lot of money. Any BCM with a reasonable number of complexes will be taking in a lot of money for very little cost to them. IT is surprising that a really switched on BCM hasn’t realised the competitive edge it would give their business if they were prepared to hand back to their clients at least 25% of their 20% commission ie 5% of the total premium. I have found at least one truly independent Broker who already follows this practice. By sourcing quotes from a whole range of Insurers, and then handing back some of the commission to the BC, this Broker nearly always comes up with a final package for the BC which saves them thousands of $$$s every year compared to what they’d been paying via their BCM. And there is nothing secret here…this Broker is quite open about it.
Across all of these Risks, there is another pattern emerging. This involves the relationships between a number of the main players. For example, the BCM is required to disclose any relationship with an Insurer, and any relationship with a Broker. But the BCM is not required to disclose any relationship between the Insurer and the Broker.
With all respect to anyone speaking up for the strata insurance game in QLD, I do think an independent review, say at the Royal Commission level, would lead to large scale changes to this game. There are too many complexes which have been rorted for too many years to allow the status quo to continue.
In NSW the commissions to strata managers undoubtedly are counted as important extra income. They may be viciously fought for. We had the experience, when the Owners Corporation decided to change strata managers, that the outgoing strata manager pre-paid our annual premium to get the commission. He told me there was no way the new strata manager was going to get it. An unholy row then broke out, ending with the strata manager being forced to disgorge his commission, which then went to the credit of the new manager.
It could be argued that strata management fees would rise if the commission system was abandoned, but at the moment there’s a lack of transparency with few strata owners realising what goes on, and the annual insurance item being waved through at the AGM.
We have received the following response from Margaret Shaw:
I’m just an unpaid retired IT Consultant trying to get fair and affordable premiums for North Queensland. I’ve taken the time to read the Victorian and NSW strata legislation (which is why there has been a delay in my response) and I hope Greg Honeyman has now taken the time to read the Qld BCCM Act.
All States have different legislation and there are many different types of Body Corporate Managers, some more professional than others. The article in question refers to Queensland only, and for people’s information I never used the term “Secret” I use the term “not clearly disclosed” and without disclosure you can’t negotiate, and we have to negotiate.
Why are we suddenly fighting commissions up here in Qld? We’re fighting everything to do with insurance!!
In 2011 the insurance premiums for Strata Title unit buildings, particularly large complexes and Tourist Resorts, in North Queensland increased by 200-500% overnight and without warning or claims. According to the Hon Warren Entsch MP he has examples of 800-1000% in Cairns. I believe this crisis has cost people in North Qld more than $1B in additional premiums over the last 4 years.
I found the MBCM strata management disclosure “DISCLOSURE OF INSURANCE AGENCY FEES AND COMMISSIONS” exceptional. I’ve certainly never seen anything like it, and I won’t until Qld legislation is changed.
The Federal NAIP Taskforce Report was released last Friday (4th March) and it quotes:
“Regulating commissions to strata managers: Commissions paid to strata managers when they purchase insurance on behalf of an owners’ corporation are generally calculated as a percentage of price, which means they may act as a disincentive to seek best value for money. In most states and territories, legislation already requires strata managers to act in the best interests of their clients and to disclose commissions.”
The situation we are experiencing in Queensland seems to differ from VIC and NSW. The insurance commission disclosure for BCMs is more often than not contained within the Management Agreement, and is from between 5-20%, depending on the Insurance Company.
Fortunately, BCMs and Brokers are a bit sheepish now about how much extra it is costing complexes in Qld to use them, so when a renewal comes out we ask them how much both parties are getting, in writing. As a result you normally get the following type of email (the following is from an actual email from a BCM):
For the *** (insurer) premium the broker receives from the insurer 20% of the base premium (excl. GST, stamp duty) and pass on to *** (the body corporate managers) 15%, thus keeping 5% for themselves. *** (the body corporate managers) are prepared to consider a reduction of its share of the commission. I will get back to you on this tomorrow after consulting with the broker.
This resulted in a reduction of commission and therefore, outlay for the complex. You can’t negotiate until you ask.
Unless the strata property is small, valued at less than $5M and has a competent Body Corporate Committee, I believe a broker should be used for obtaining insurance quotes.
When a Management company gets a commission direct from an insurance company (not paid for by the owners):
When a Management company gets a commission from a “preferred” broker then that can add $1,000s to the bill because our local brokers don’t charge 20% of base premium for placing insurance, they charge less and in some cases a set fee.
The things that have to be thought about for Qld in particular:
According to brokers, you may also be interested to know that there are now brokers who charge a 10% fee in addition to receiving a 20% commission. They pay the strata manager the 20% commission and keep the 10%. The client ends up paying for it in the long run. How this works in the customers favor I don’t understand.
And for my final comment…
In 2015 the NSW Government implemented significant strata law reforms, Qld needs similar changes.