Trowbridge strata report recommends improved disclosure
An independent review of strata insurance practices has recommended standard templates and definitions as part of a self-regulatory solution to provide greater transparency around costs and remuneration paid to brokers and strata managers.
The report, commissioned by Steadfast and produced by consultant John Trowbridge, says insurance quotations should be accompanied by a statement of scope of services by strata managers and brokers and a full explanation of commercial relationships.
The National Insurance Brokers Association (NIBA) and Strata Community Association (SCA) should consider the report’s recommendations in detail and give effect to decisions they take on a self-regulatory basis by establishing guidance notes or practice standards for members, it says.
Steadfast CEO Robert Kelly says remuneration in strata is convoluted and the template proposal would provide clarity around the elements that make up the total cost of the insurance, while the plans require further discussion.
“It gives the consumer who pays for the insurance a clear indication of who gets what,” he said. “I think it is ambitious, but it gives a pathway. If people think there is an issue in understanding the flow of money, then this is a clear and unequivocal way to look at it, which diagrammatically shows you who gets what.”
Mr Kelly told insuranceNEWS.com.au the report needs to be considered by all involved, while the type of changes proposed may take some time to be incorporated into sector participant processes.
“John’s report needs to be debated, it needs to be canvassed amongst the various participants and then there has to be a consensus view, that is made up of the protagonists in this whole flow of money,” he said.
Mr Trowbridge says there has been unanimous support for change during the consultation process, but some form of regulatory initiative is needed to give brokers and strata managers clear guidance and confidence in any changes, and an incentive or obligation to make the changes.
“There is an overwhelming desire by both SCA and NIBA at this time for self-regulation to the extent that regulation is desirable or necessary to bring about agreed changes,” the report says.
“Furthermore, both NIBA and SCA are eager to promote change and have indicated a desire to work with their members and with each other to establish a workable self-regulatory regime for strata insurance disclosure.”
NIBA CEO Phil Kewin welcomed the report and said the core of the recommendations was consistent with the group’s approach to transparency through the new brokers code of practice.
“It’s important that we recognise the role that brokers and strata managers play in strata insurance in addressing the needs of the owners’ corporation, but it needs to be clear what role each of the parties are playing and how they are remunerated,” he said.
“NIBA supports transparency, and while we will not be mandating a templated approach, we will include the template in our implementation guide which accompanies the insurance brokers code of practice.”
The Trowbridge report says that, where strata managers and brokers are both involved, the unorthodox structure of the strata insurance market is confusing, with frequently part or all of the commission paid to the strata manager and a separate fee charged to remunerate the broker.
Issues are compounded in many cases by opaque or incomplete disclosure to the owners’ corporation of insurance-related transactions, it says.
Mr Trowbridge proposes that the items to be disclosed should include the base premium, commission, broker fee, emergency services or fire services levies, stamp duty, other fees, goods and services tax and the allocation to the strata manager and broker of the total of the commission plus broker fee.
Each of the eight items also needs to have a clear and unambiguous definition or explanation, it says.
The report marks Phase 1 of the independent review. Phase 2 will look at remuneration of intermediaries and possible reforms and Phase 3 will consider competition, affordability and availability of strata insurance.
