In this article, we look into some of the general questions owners may have surrounding strata insurance commissions within the owners corporation industry in Victoria. In particular, we discuss what owners corporation managers should be doing to establish and maintain open and transparent disclosure with owners.
Table of Contents:
- QUESTION: Our new strata manager’s SCA contract states the OC manager receives a percentage of the insurance premium as a commission. Does that preclude the OC from organising their own insurance?
- QUESTION: Our strata insurance runs out very soon, and our owners corporation manager has not paid for insurance or arranged an AGM. Where does this leave us?
- QUESTION: We would like our OC manager to source strata insurance quotes but she won’t help unless it’s through their broker. At the moment, they receive 28% commission.
- ARTICLE: My strata manager is receiving commissions from various parties connected to my owners corporation which challenges my perception of whether the manager is acting in the owners best interests.
Question: Our new strata manager’s SCA contract states the OC manager receives a percentage of the insurance premium as a commission. Does that preclude the OC from organising their own insurance?
The committee have signed a contract of appointment for a new strata manager. The strata management company uses the Strata Community Association contract of appointment, which includes clause 1.3 relating to insurance fees and commission.
The owners corporation manager may receive or retain, as a commission, a percentage of the base premium payable by the owners corporation on the placing of insurance or the insuring of risks by the owners corporation.
Does this signed contract preclude the committee from obtaining and handling the strata insurance renewal?
Answer: If the owners corporation is considering not using the strata manager’s services for their insurance needs and is planning to engage an insurance broker or another party, this should form part of your contract negotiations.
In this instance, the contract condition states that if the insurance commission is less than 15% of the base premium paid by the owners corporation, the owners corporation will pay the manager a fee, the difference between the commission received and 15% of the base premium.
It’s important to highlight that this condition applies regardless of the involvement of the strata manager in arranging the insurance. For instance, even if the owners corporation decides to secure their insurance without the strata manager’s involvement, there is still a requirement to pay the strata manager a fee equivalent to 15% of the base premium as a management fee.
If the owners corporation is considering not using the strata manager’s services for their insurance needs and is planning to engage an insurance broker or another party, this should form part of your contract negotiations.
Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.
This post appears in the March 2024 edition of The VIC Strata Magazine.
Question: Our strata insurance runs out very soon, and our owners corporation manager has not paid for insurance or arranged an AGM. Where does this leave us?
Our strata insurance runs out very soon, and our owners corporation manager has not paid for insurance or arranged an AGM. They have stated they need to obtain three insurance quotes before holding the AGM. We are not sure why this has been delayed.
All phone calls and emails about the matter are ignored. When I finally reached the strata manager, they were very aggressive. Where does this leave us?
Answer: You are under no obligation to do business with the strata manager’s broker or insurer.
Firstly, when it comes to strata insurance, it is important to know there is nothing obligating you to do business with the strata manager’s broker or insurer. If you feel it is no longer in your best interest for the strata manager to arrange your insurance, consider arranging the insurance separately.
In Victoria, most strata management contracts include a condition that requires a 15% fee to be paid to the strata manager. This condition often locks you into the strata manager’s chosen broker, making it financially impractical to explore alternative insurance options. Be aware of this limitation when considering your insurance choices and try to negotiate the removal of this condition when negotiating your contract renewals.
Likewise, if your strata manager is unresponsive, ignores emails, or exhibits aggressive behaviour, it may indicate it’s time to seek a new strata manager who prioritises providing excellent service.
Generally, insurers will issue renewal quotes 14 days before expiry unless there is a specific reason they cannot issue the quotes beforehand. If the strata manager is arranging quotes and submitting them to the committee for approval,this needs to happen before the policy expires and a reasonable service expectation in the industry is to receive your quotes 14 days prior to expiry.
In the event of delayed quotes, it’s important to understand the underlying reasons. Seek further explanation from your strata manager and broker. Potential causes of delays may include:
- Late initiation of the quoting process by the broker or strata manager.
- The strata manager has the quotes but delayed their issuance to you.
- The insurer failed to provide the renewal quote within the provided timeframe.
- Delays result from a lag in providing necessary information.
To gain a clearer understanding of the situation, consider the following steps:
- Check the date the quote was issued. If it predates the date provided to you, it suggests a delay on the strata manager’s part.
- Request the strata manager or broker to provide documentation, such as emails sent to insurers requesting quotes and email responses from insurers (those documents should show the date the quote requests were sent). This will help establish a timeline and shed light on any potential delays.
I recommend you consider seeking assistance from an alternative insurance broker who can guide you in dealing with the issues you face with your strata manager. It is evident your current insurance arrangements are not adequately serving your interests. By consulting with an alternative broker, they can thoroughly assess the situation, offer guidance, and help you explore better alternatives that align with your needs.
Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au
Disclaimer: This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances and the specific coverage afforded under their policy wording. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
This post appears in Strata News #657.
Question: We would like our OC manager to source strata insurance quotes but she won’t help unless it’s through their broker. At the moment, they receive 28% commission.
Due to claims history, our Vic Strata Insurance fees and excess are huge. I rang around and found that private strata insurance was more competitive. We would like the OC manager to source quotes comparable to what we have found but she won’t help unless it’s through their broker. At the moment, they receive 28% commission. Are we stuck with this choice? The other owners are reluctant to consider anything unless it’s thru the OC manager.
Answer: If all 3 lots are within the boundary plan, it means that to comply with the legislation, the Owners Corporation must insure all lots via strata insurance.
As an owner, you have the ability to present a proposal for insurance that is not through the strata manager to other owners and have them consider this proposal.
I suggest first finding out why owners are hesitant to arrange insurance outside of the strata manager.
If the owners believe they will not get the same level of service or cover, these fears can be addressed because owners should not experience a difference in their claims service simply because the policy is not managed by the strata manager.
In this instance, I think more work needs to be done discussing the various options with owners and overcoming any concerns they may have about insuring elsewhere.
Tyrone Shandiman Strata Insurance Solutions T: 07 3899 5129 E: tshandiman@iaa.net.au
Disclaimer: This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances and the specific coverage afforded under their policy wording. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
This post appears in Strata News #499.
My strata manager is receiving commissions from various parties connected to my owners corporation which challenges my perception of whether the manager is acting in the owners best interests.
This statement is a sentiment shared amongst many members of owners corporations throughout Victoria and across Australia.
As per section 71(2)(c) of the Owners Corporation (OC) Act 2006 (the Act), the provision of details of the insurance held by the Owners Corporation must be dealt with at the Annual General Meeting (AGM). As the AGM doesn’t always coincide with the renewal of insurance, it is common practice for managers in addition to dealing with the insurance with members at an AGM, to present insurance renewal quotations to the owners or committee at an alternate scheduled meeting, or via electronic communication, prior to the renewal of the policy. This is to ensure that the Owners Corporation’s insurance premium is competitive in the market for both policy inclusions and value.
What if a member of the OC presents an external insurance quotation to the owners, separate to the quotations gathered by the manager’s insurance provider or broker?
A possible scenario is that your manager may only present or table quotations from an insurance provider or broker in which they are an Authorised Representative (AR). Explained simply, the AR status permits the manager to provide general and factual advice with respect to insurance policies from the insurance broker or provider they are representing. In this circumstance, your manager may be limited, to an extent, from being able to source quotes from insurer’s external, to the manager’s insurance provider or broker, due to not being an AR for those insurers.
But what if the insurance quotation, external to the strata manager’s provider or broker, has better policy inclusions and value for the Owners Corporation?
In this instance, the owners should not be constrained with which insurer they choose based on whether the manager is an AR for them or not. Your manager should inform the owners that if they were to proceed with an insurance renewal through an insurance provider external to the manager’s provider or broker, in which they are not an AR for, the manager will be restricted to only providing factual information to the Owners Corporation with respect to that insurance policy.
If the owners are in agreement to this arrangement, then there is no cause for the Owners Corporation not to be able to proceed with an insurer of their choice, particularly if the insurance provider is offering better policy inclusions and value.
Will my strata manager still receive a commission if the owners proceed with an external insurance provider?
With respect to insurance commissions, a significant number of managers in the industry obtain a commission to manage the insurance aspect of the Owners Corporation including, but not limited to:
- Gathering property information to complete and submit quotation request forms, which can include retrieving the properties:
- Claims history;
- Construction and building details;
- Fire protection information;
- Security protection information; and
- If commercial strata; estimated rental turnover, tenant business information and so on.
- Circulating or tabling quotations to owners for decision including liaising between owners and broker or insurer
- Assisting owners, committee or chairperson with respect to lodging an insurance claim including, but not limited to:
- Acting as a conduit between broker or provider and owner if private property related; or if a common property related, between committee or chairperson and broker or provider;
- Guiding the owner, committee or chairperson through the completion of the claim documentation process based on the brokers or insurers instructions;
- Assisting the owner, committee or chairperson in appointing contractors based on the brokers or insurers approval;
- Coordinating meetings and access to site for contractors and/or assessors;
- Tracking the progress and following up claims to ensure that they progress as swiftly as possible;
- Ensuring the claim loop is closed and finalised after satisfactory completion of rectification works including the settlement of claims and distribution of funds to the relevant parties; and
- Keeping records of all relevant documentation
- Obtaining a valuation for the property for insurance purposes based on owners instructions; and
- Liaising with the broker or insurer with amendments to the policy as a result of the valuation, subject to approval from members.
In terms of disclosure, insurance commissions received by managers are disclosed in the standard management contract, provided to its managers from the peak industry body for Owners Corporation Management in Victoria – Strata Community Association (SCA).
In addition to the standard contract disclosure, managers should make it prominently known at the proposal stage of engagement with any prospective owners corporation. Once appointed they should communicate on an ongoing basis any receipt of insurance commission at each Annual General Meeting. Further to this, and in order to demonstrate an even higher level of transparency with their clients, the manager could also disclose their commission at the point at which they circulate the insurance renewal quotations to the owners. The manager, at that stage, can disclose the dollar amount they will be receiving in commissions, based on the owner’s selection of insurer.
By following all the above steps, it ensures that at each point of engagement with the owners and committee in relation to insurance, the manager is giving them all the relevant information, providing them ample opportunity to query any aspect of the commission and further to this allows the manager to alleviate any concerns or reservations owners may have.
Generally, if the Owners Corporation proceeds with an insurer listed on the panel of the broker or with a provider in which the manager is an AR for, the manager will receive a commission as a percentage of the base premium. According to information from a reputable insurance broker in the industry, under this arrangement, the commission paid by the insurer is at no additional cost to the Owners Corporation. It’s important to keep in mind that this may not be the case with all insurance brokers.
With that said, if members were to proceed with an external insurance quotation separate from the quotations gathered by the manager, in which the manager was not an AR, then the manager, in most cases, would not receive an insurance commission from the insurance company. In this situation, as the manager would be losing revenue, he or she would generally have the ability to directly charge the Owners Corporation for this commission amount, so long as it is written into the management contract. The standard contract from the SCA does include such a clause, for the manager to avail themselves of.
Just like any other business, for Owner Corporation management companies, insurance commission is a revenue stream that they rely upon for the ongoing viability and sustainability of their businesses. In that, in the absence of this revenue stream, inevitably the management fees would need to increase, in order to compensate for this reduction in revenue to the business.
Insurance commissions are a part of the Owners Corporation industry, at the least for the foreseeable future. If managers proactively practice greater levels of transparency above and beyond minimum acceptable disclosure requirements expected from owners, as well as remaining open and honest to owners through proper explanation and education so that they are better informed, there is no reason, why the topic of insurance commissions needs to be so hidden in the Owners Corporation industry.
Jonathan Smith Director of Strata Operations Beyond Strata P: 03 8595 4364 E: jonathan.smith@beyondstrata.com.au
“While we make every effort to ensure this material is accurate and up to date, such material does in no way constitute the provision of professional advice. We do not guarantee, and accepts no legal liability whatsoever arising from or connected to, the accuracy, reliability, currency or completeness of this material. Readers should seek appropriate independent professional advice prior to relying on, or entering into any commitment based on material published here, which material is purely published for general reference purposes alone.”
This post appears in Strata News #205.
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