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: Although our OC managers play no role in arranging our strata insurance or claims management, they take a 5% fee. Can we object?
- 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: Although our OC managers play no role in arranging our strata insurance or claims management, they take a 5% fee. Can we object?
Our independent Insurance broker receives 16% commission from the insurer. Our owners corporation (OC) manager plays no role in arranging insurance or in claims management, yet they claim to be entitled to a 5% fee.
The total 21% commission is a lot for a small OC. Do we have grounds to object to the manager’s commission?
Answer: This will depend on the terms outlined in the strata management contract.
The OC may have grounds to object. However, the feasibility of doing so will largely depend on the terms outlined in the strata management contract. First, we recommend the OC review the contract to identify any clauses related to insurance arrangements, broker commissions, and additional fees.
Some strata management contracts include “penalty clauses”. These clauses impose additional costs if the OC chooses to work with an insurance broker who does not pay commissions to the strata manager.
An OC always has the right to raise objections to any terms it finds unfavourable. Even if a penalty clause is in place, the OC may still approach the strata manager to discuss potential adjustments. However, it is worth noting that while some strata managers may be open to negotiating these terms, others may prefer to adhere strictly to the existing contract terms. Therefore, flexibility in negotiating during the contract term will vary depending on the strata manager.
If negotiations are unsuccessful or the strata manager is unwilling to alter the terms, the OC can still consider renegotiating these points when the contract comes up for renewal or exploring alternative strata management providers who may offer more choice and flexibility.
Ultimately, for strata buildings to maintain competitive insurance costs, they must exercise their choice and select providers who best suit their unique needs.
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 Strata News #731.
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.
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