In May, insurance industry consultant John Trowbridge released the final report in his independent review of strata insurance. A major focus of the review – commissioned by Steadfast Group – was the fees and commissions charged by brokers and strata managers. Trowbridge said the existing “opaque” fee system should be phased out and provided recommendations to improve transparency and disclosure.
“We published a report for everybody and the report has died,” said Steadfast CEO Robert Kelly in an Insurance Business interview this week. However, Kelly hoped that industry stakeholders would look at the review and make decisions about “maybe changing some of the ways we’re going about doing our business.”
IB is consulting with industry stakeholders.
Hutch Underwriting offers a residential strata policy. Sydney-based CEO Robin Johnson (pictured above) said the issue of strata insurance fees is “very topical” and “slightly controversial.”
“The reality is both strata managers and insurance brokers provide really valuable services to the end client and both of them deserve to be rewarded for those services,” said Johnson. “I think if you looked at each of their P&L’s, neither of them are making outrageous profits out of strata.”
However, he said a strata insurance bill would be more transparent by dividing it into three.
“Probably the only thing that really ought to change is the fact that the end client is presented with one insurance bill rather than three separate bills, or three separate line items, which is the premium, the brokerage and the strata manager’s fees,” said Johnson.
However, Johnson doubted this would “radically” change the costs.
“But you might see some reduction in the overall cost for the customer because obviously you wouldn’t have stamp duty and ESL on the broker’s commission, which would be positive,” he said.
Johnson said the current system does raise consumer protection issues.
“Certainly, better disclosure would be a good first step towards moving to a different model,” said Johnson. “But I think that radically changing the model is going to be difficult because there is a lot of vested interest in keeping the model as it is.”
He said all the stakeholders along the strata food chain “need to eat.”
“I think the overall economics are unlikely to change regardless of what happens to disclosure or whether the fees are included in an insurance bill or not,” said Johnson.
He also said “technology and competition” could act as enablers in a move to a different model.
“Particularly as robotic process automation strips a lot of the manual work out of the volume end, potentially allowing brokers to lower their costs to build market share,” said Johnson.
In the UK, the Financial Conduct Authority (FCA) is currently looking at reducing the commissions brokers charge for strata insurance.
The article said an investigation by the regulator found that brokers had “not produced enough evidence to justify a nearly 40% rise between 2019 and 2022 in their fees.”
The FCA, according to the FT article, said brokers were “often unable to articulate” what landlords were doing to justify the increased costs of insurance.
“The FCA said brokers had shown ‘significant shortcomings’ in applying fair-value rules to what they charge for their own role in securing insurance and what they pay to others,” said the FT.
Kelly hopes strata stakeholders in Australia will take a serious look at the Trowbridge recommendations.
“The participants in this market should reflect upon its comments and the legislation and review whether they’re happy with the way they are interacting with the strata that they represent and the insurer and the advisor,” he said.
When he completed his review, Trowbridge said the Strata Community Association (SCA) was “actively pursuing these recommendations with its members and the broking community.”
He “encouraged” owners’ corporations to “satisfy themselves as to the appropriateness of fees and commissions.”
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