It landed on the last trading day of the financial year, almost as if regulators wanted brokers to start the new one with a clean conscience. The Insurance Brokers Code Compliance Committee has just published a report reviewing seven brokers and 1,088 representatives working in strata. The findings should worry anyone who has ever signed an insurance renewal without asking who gets paid, what they are paid, and by whom.

The Committee reviewed agreements, conflicts of interest, and remuneration disclosures across the strata sector. All seven brokers had agreements that failed to meet Code requirements. None required representatives to report breaches within five days. None specified the particular Code obligations representatives were expected to meet. Two brokers had agreements requiring strata managers to solely promote the broker’s interests, directly contradicting the manager’s legal duty to the owners corporation. A third arrangement involved a strata management company that wholly owned the broker it placed business through and received a share of that broker’s profits, yet the broker did not recognise this as a conflict. Nine formal breach determinations were issued across all seven brokers. Two brokers were referred to ASIC for consideration under the Corporations Act, and one matter was referred to NSW Fair Trading under the Strata Schemes Management Act.

Why is the conflict in this chain of responsibility impossible to manage?

The conflict in this chain of responsibility is impossible to manage even where there is no ownership link or profit-sharing between the manager and the broker. The Code requires brokers to ensure their strata manager representatives comply with the Code on the broker’s behalf. Strata legislation simultaneously requires managers to act in the best interests of the owners corporation as a fiduciary. The report also reinforces that the broker itself remains in a fiduciary relationship with the owners corporation, even when it appoints a strata manager as its representative, despite brokers having long insisted their client is the manager, not the owners corporation. That leaves two parties, the broker and the manager, both owing fiduciary duties to the same owners corporation. These obligations pull in opposite directions, and they can’t be reconciled, no matter how well-meaning the parties are.

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Read: At the Crossroads: The End of Hidden Commissions in Strata Management

Where deeper commercial interests exist, do the parties understand the conflict?

Where deeper commercial interests exist, this report shows that brokers and managers don’t understand the conflict or how to manage it. This finding sits alongside the research of Dr Nicole Johnston in At the Crossroads: Addressing Pervasive Conflicts of Interest in Strata Management. Johnston’s research shows that managers struggle to explain the broker relationship. They also can’t agree on who the broker’s client is. In her interviews, strata managers gave contradictory accounts of broker appointment authority, and one operator admitted their own staff did not understand how the commission structure worked. We cannot expect brokers and managers to manage what they have repeatedly demonstrated they do not understand.

Read: SCA NSW’s Missteps Threaten the Future of Strata Standards

What is at stake financially for owners corporations?

What is at stake financially for owners corporations is substantial. One reader reported saving over $50,000, a 31% drop, by switching their insurance to a new broker. They got the same coverage but with a better excess. The committee demonstrated good governance along the way by sharing building maintenance and refurbishment records with underwriters to make the case for a better risk profile. The troubling part: they still cannot tell me how, or how much, the new broker is being paid. The premium has fallen.The opacity around remuneration has not.

What is the inescapable conclusion?

The inescapable conclusion is that neither brokers nor managers can regulate their way out of this quagmire. Banning commissions on strata insurance, paid to both brokers and managers, is the only credible solution. State governments can’t regulate insurance brokers; that power belongs to the federal government via ASIC. However, they do regulate strata. That is enough. Laws at the state level can prevent strata managers from making commission deals related to insurance. Owners corporations can still hire a broker if they wish. The broker’s fee will be clear, presented in dollar terms, agreed upon with the client beforehand, and paid by the client. It won’t be hidden in the insurer’s premium.

Read: No Free Lunch: What the Strata Commission’s Review Really Means for Agents and Owners

The report is a step forward. But a Code compliance finding is not structural reform, and structural reform is what this problem has always needed. Maybe then we can all sleep well with a clear conscience.

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