A Senate Committee has been told that the government should not ban strata insurance commissions outright but let the market decide how body corporates are compensated.
This comes after the chair of the Australian Competition and Consumer Commission (ACCC) proposed to ban commissions in the strata insurance market in September in response to a report by ABC’s Four Corners program.
The report alleged that the insurance broker network Steadfast Group had run a scheme to provide kickbacks to strata managers without property owners’ knowledge, thus inflating insurance policy prices.
Insurance Group Denies Allegations
The Steadfast Group has denied the allegations, claiming that the report did not present the complete picture of the situation while omitting information.At a Senate inquiry on Oct. 9, Steadfast Group CEO Robert Kelly disagreed with the ACCC chair’s proposal.
“I think that’s a matter for the market to determine,” he said.
“I think there needs to be complete interaction about what both sides of the equation do, before you make a statement that’s broad to say: let’s ban that.”
The CEO further explained that a strata manager provided services and needed to offset the costs by taking commissions from insurance premiums, which had to be negotiated with the strata committee.
“And if a broker acts on behalf of the strata plan, then what he charges for that service should be articulated to the strata plan, and they should make the decision on whether it’s correct or not,” he said.
In addition, Kelly said the commission model in the insurance market was adopted worldwide.
“Insurance all around the world is done on a commission basis, except in one country, Denmark, and there are more people in Sydney than there are in Denmark,” he said.
“For 300 or years, [UK insurance company] Lloyd’s has operated a system to service people all around the world on a commission-based distribution network.
“Just thinking that you can stop commission and reduce cost—it’s erroneous to say that. Somebody has to pay for the services, whether those services are worth the cost of commission.”
Kelly also stated that he supported new legislation to make charging commissions more transparent to consumers.
He gave the example of a bill by the New South Wales government that compelled strata managers to disclose any kickbacks they receive when providing services to the executive committee of that strata and get their approval.
“That legislation is very clear and unequivocal, and nobody could hide, neither broker nor strata manager,” he said.
“The strata will be fully informed about any service that’s given … that if there is a payment back for that service to the strata manager, it has to come to the [executive] committee.”
