Strata managers accused of $240m insurance rort

Hi Jimmy-T,

Not surprising at all.

Tragic is the fact that SCA is not willing to take any action.

We have spoken to owners in may complexes and almost none were aware that it was not necessary to use strata managers for obtaining quotes for strata insurances. Best practices, to avoid conflict of interest, recommend that committee members seek quotes from the insurers.

There are also other ways for strata managers to earn more from insurance renewals.

In addition to disclosed commission received by the strata manager, a profit share is also paid to the strata manager. Strata manager must disclose a commission – but what is not disclosed is the further profit share for the placement of the policy. For example, below is a disclosure in the Financial Services Guide of one insurance broker that has a business model based on the payment of referral fees to strata managers:

We may also make other payments to the shareholders of our parent company (name withheld) and our Strata Manager calculated by reference to our profit, less certain cash flow and certain capital expenditure (distribution amount). For the Strata Manager’s their share of the distribution amount will relate to the insurance premium generated as a consequence of each manager financial services.

How significant are benefits to strata managers is shown from collection of strata commissions in one large strata complex in Sydney in period from 1997 to 2024.