Question: Our new body corporate manager charged more for insurance commission than originally agreed. We have proof, but they won’t refund the difference. What are our options?
We initiated a contract with a new body corporate manager in December 2022 based on an emailed quote on letterhead signed by the company principal. Two prices were offered, depending on whether the body corporate company organised the insurance and were paid a commission. The offer excluding insurance commission was $800 dearer than if the manager arranged the insurance and earned a commission.
We chose the cheaper quote, allowing for an $800 insurance commission to be paid from the premium. Within six months, the business sold and the insurance broker changed to a broker who pays higher commissions.
The premium breakdown shows the manager’s commission component of $2300. We provided evidence of the original agreement and requested a refund of the difference, but the new manager hasn’t responded. What are our options?
Answer: Check specific wording in the contracts and what they allow the new management company to do.
I suspect this will come down to the specific wording in the contracts and what they allow the new management company to do. As the next step, the body corporate should probably contact a body corporate specialist solicitor and have them review the wording of your contract and advise. This will cost you a little money, but the certainly this will provide is worth it.
Whatever the outcome, it is odd that the new management company hasn’t responded in a reasonable timeframe or manner to your questions. They may have some reasonable points to make and may be correct in their interpretation of the contract, but starting a new relationship with a dispute and poor service doesn’t seem the best choice. Whatever happens, I expect you will make your own decisions about the value of continuing the relationship on the basis of this interaction.
Another alternative is to arrange your insurance through an independent broker. In that case, they could provide you with a renewal offer that wouldn’t include a commission to the body corporate manager – although there are fees from the broker. Insurance issues would be managed between the committee and the broker. If you went down this path, you would also need to review your contract. Some companies have a penalty clause in their agreement to manage situations where they don’t receive a commission, and some don’t. Check that before making any decisions. By the sounds of things, your insurance is due soon anyway, so it may be difficult to arrange this at short notice. It could be something to consider for future years.
More generally, insurance commissions will be a central battleground between customers and management companies over the next few years. The commission system has had its merits over time. It has successfully helped body corporates nationwide ensure they have the required coverage. However, the fatal flaw with the system is that the commission paid to the management agency is usually based on a percentage of the premium. As premiums have shot up in recent years, manager’s commission payments have also increased, resulting in consumer dissatisfaction with the commission set up. Body corporate companies and related authorities have been slow to react. Hopefully, change is on the horizon. And, as you might expect, many body corporate companies have become more than a little addicted to the extra revenue that has rolled in from rising premiums, making it hard for them to contemplate alternatives. As a result, disputes like yours are becoming more commonplace.
It will be interesting to see how the market reacts. My company, for example, has already moved on to a new insurance management system. You might expect to see more small to mid-sized body corporates with greater flexibility in their operations bring out alternative offers over the next couple of years. Perhaps the number of customers wanting change will reach critical mass, resulting in widespread change across the industry. Maybe your scheme will be in the vanguard of that movement.
William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924