Strata practices report unleashes torrent of criticism  – Insurance News

Allegations that a major New South Wales strata management company has been charging excessive fees for insurance services without full disclosure of arrangements have struck a chord and unleashed a torrent of criticism aimed at practices within the sector .

The Australian Consumers Insurance Lobby (ACIL), a strong advocate of strata issues, last week joined the Owners Corporation Network of Australia (OCN) and the Unit Owners Association of Queensland in writing to regulators calling for an investigation into the practices from Netstrata.

The issues raised in the ABC news report focus on one company, but the groups say they have far-reaching implications and are clearly part of broader issues.

“We see this as an invaluable time to advocate for the necessary changes that will ensure the safety and rights of strata residents,” said OCN CEO Karen Stiles.

Bronwyn Weir, MD of Weir Legal and Consulting, and co-author of a high-profile report into the strata sector's construction issues, says the issues raised by the ABC investigation will be the tip of the iceberg.

“Sunlight is the best disinfectant. Regulation of the strata industry needs reform across Australia,” he says on LinkedIn.

Insurtech Gateway CEO Simon O'Dell also posted on LinkedIn that strata managers are acting like a post office box and charging ridiculous fees.

“It took a long time for price gouging by strata managers to make national headlines. Yet another example of incredibly high distribution costs,” he says. "The value layers that managers create in the insurance value chain would have to be at most 5% of the friction cost they represent."

Last month, ACIL submitted 146 examples of bad behavior to the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission, and now wants those regulators and the New South Wales Real Estate and Strata Services Commissioner to examine Netstrata specifically.

Concerns about deals involving two intermediaries, a strata manager and a broker, have been simmering for some time, but inflation, cost-of-living pressures and rising apartment insurance costs have helped bring them to a boil. .

In early 2022, Steadfast commissioned an independent review by consultant John Trowbridge into remuneration and service delivery by strata.

“Steadfast believes the market is to some extent dysfunctional along its value chain, from customers (lot owners) to strata managers, brokers, underwriting agencies and insurers. “Most of the issues in question have emerged gradually through historical market developments,” group CEO Robert Kelly said in the foreword to the review.

The primary objective of the review, he said, was to "identify significant initiatives aimed at overcoming the structural issues that are of concern to both the Steadfast Group and many other participants in this market."

The first phase recommended better disclosure of remuneration arrangements to owners' committees, who often do not know who receives what payments, even though they are the ones paying the fees and being the clients.

The second document proposed a review of the way brokers and strata managers share remuneration to manage conflicts of interest. The paper also criticizes opaque arrangements where a third party is owned by the strata manager, the broker or both.

Mr Trowbridge's transparency recommendations have gained some traction and have helped inform a disclosure best practice guide from the Strata Community Association, which will be incorporated into the code of practice next year.

But ACIL has said it does not go far enough, while Trowbridge's plan for “structural alignment” and the phasing out of certain practices to address potential underlying conflicts of interest was not met with enthusiasm in the industry.

"This view is not widely supported by strata managers or brokers, as many of them wish to maintain existing practices despite the problems identified," says the final document, published last year.

In the absence of regulation of brokerage charges, it is up to owners and strata committees to question or negotiate with their strata manager and broker about remuneration, the document says, and better disclosure potentially means they are in a position stronger to do it. .

But ACIL says strata committees are essentially vulnerable consumers as they are made up of volunteers who change regularly, often do not fully understand strata insurance and delegate the purchasing decision to the strata manager.

The Australian College of Strata Lawyers says disclosure is not “a panacea” and that strata administrators must “act strictly in their role as fiduciaries” of the ownership corporations they manage.

ACIL has been highlighting the way strata managers appoint brokers, the use of delegated authorities to enter into insurance contracts, informed consent, conflicts of interest and the role of commissions. It has suggested that some practices may be violating laws such as the Trade Practices Act.

The Netstrata report has fanned the flames of a fire that had already been lit and it remains to be seen whether regulators will take a more active role and how the industry will respond.