Are commissions such a sin?

The strata management industry is split over an issue that some claim could be the death of the small local operators across Australia.

The question keenly debated at the Strata Community Australia (strata managers’) annual convention in  Perth two weeks ago was the payment of insurance commissions to strata managers.

There are Government moves afoot to wipe this out and it seems to be a no-brainer.  Why should strata managers trouser 20 percent of an insurance premium just for getting their clients to sign up with a specific insurer?

Are Owners Corporations getting the best coverage if their strata manager is taking a kickback for arranging the insurance?  To many people it all seems a bit, well, sleazy.

So let’s clarify: there’s nothing underhand or dishonest about this.  Strata managers have to reveal their commissions to their Owners Corp clients.

And many Owners Corps who have gone directly to the insurance companies have discovered that they don’t save a red cent.  The premiums don’t come down just because there’s no commission.

It gets worse. If their strata manager puts their fees up to compensate, the owners’ levies go up too.

The way to get lower premiums is to shop around and you would normally do that through an insurance broker … who gets commission.

Smaller strata management firms tell me they depend on their insurance commissions to survive financially. In effect, commissions are subsidising the small strata managers of Australia.

Remove commissions and the smaller companies will be forced to raise their fees, making it harder to compete against the big players who are often better placed to absorb the losses.

Building insurance is an inescapable legal obligation of Owners Corps and if wiping out commissions leads to less choice for consumers, I’m against it.

Admittedly, the commissions system is an anachronism that reeks of backhanders and dodgy deals.  But it’s mostly transparent and it usually works.

Get rid of it, by all means, but not until you’ve come up with a system that allows small strata management firms to survive.

The insurance commissions debate is raging HERE, with strong views from all sides, and where you can add your tuppenceworth (plus 20 percent).