Trowbridge releases “first step” of strata insurance market review

Industry expert John Trowbridge has released the first part of his independent review of the Australian strata insurance market. The paper, Phase 1 – Disclosure: Findings and Recommendations, focuses on the disclosure practices of intermediaries.

In his report, Trowbridge said this paper is the “first step” of a three-phrase independent review of the strata management and insurance industries.

The review aims to evaluate elements related to strata insurance, including strata management, insurance broking and insurance underwriting. The paper released today is the sequel to consultation paper released on 30 March.

The second part - called Phase 2 by Trowbridge - will focus on the remuneration of intermediaries and possible reforms.

The third part, or Phase 3, will be about competition, affordability and availability of strata insurance.

In the report released today, Trowbridge noted, “in concentrating on disclosure this paper offers explanations but no judgements or assessments about levels of remuneration or other aspects of strata insurance intermediary practices. Those questions will be considered in Phase 2.”

The Phase 1 report found that, where strata managers and brokers are involved, the strata insurance market’s unorthodox structure is:

• Convoluted because part or all the commission is frequently paid to the strata manager, while a separate broker fee is charged to remunerate the broker for their services;
• Complicated because not all the commission is frequently rebated to the strata manager, with the remainder being retained by the broker; and
• Compounded in many cases by opaque or incomplete disclosure to the owners’ corporation of insurance-related transactions.

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In his Phase 1 recommendations, Trowbridge suggested that:

• Financial disclosures in the form of broker quotations and invoices be prepared by reference to standard templates containing a minimum set of eight items with standard definitions;
• Brokers and strata managers ensure timely transmission of quotations and invoices to the strata community during the annual insurance renewal process;
• Broker presentations and quotations be accompanied by a statement of the scope of services by the strata manager and broker and by a full explanation of commercial relationships between the strata manager and the broker; and
• The Strata Community Association (SCA) and the National Insurance Brokers Association (NIBA) consider the recommendations and give effect to decisions they take on a self-regulatory basis by establishing guidance notes or practice standards for their respective members.