Victoria should carefully assess the possible impacts of banning strata manager commissions and consider reforms to stop insurable buildings becoming high-risk liabilities due to maintenance failings, the Insurance Council of Australia says.

A state strata legislation review has called for feedback on whether commissions on insurance or any other financial benefits should be prohibited for managers. 

ICA’s submission supports “robust modelling” to quantify the impact of commissions on premiums, compare fee-for-service models and assess effects for different strata schemes, in line with similar work undertaken in NSW.

“While banning the payment of insurance commissions to strata managers could be a potential solution for improving transparency, this outcome is far from certain,” ICA says.  

The submission notes Strata Community Association NSW’s decision to phase out commissions from January, and says it should yield useful data and operational insights to inform broader policy. 

Many strata buildings face insurance affordability challenges due to structural issues, deferred maintenance and inadequate risk management, ICA says. Residential apartment defect costs across Australia are estimated at $1.3 billion a year.

The submission says strata decisions are made collectively and if governance is weak, critical work is delayed.  

It proposes resources to better equip committees to manage financial, maintenance and insurance matters, calls for stronger enforcement to hold owners’ corporations accountable for defects, and backs lowering the building sales agreement threshold to 75% to enable faster renewal of ageing, uneconomic complexes that pose insurance risks.

ICA deputy CEO Kylie Macfarlane says the proposals address gaps in the system to reduce defect costs and improve cover affordability and availability. 

“Effective reforms backed by proper compliance and enforcement are essential to de-risk strata complexes and deliver better outcomes for all stakeholders.” she said. 

The Strata Owners Alliance says the lack of an effective, independent state regulator has been the biggest issue for a decade, allowing questionable and exploitative practices.

The group says insurance commissions are among the most controversial and damaging practices and should be banned.  

“Legislation must clearly prohibit any relationship between managers and insurance brokers,” its submission says. “In particular, the practice of managers acting as both broker and manager must be outlawed.”

The group also condemns contracts allowing strata managers to charge a “lost commission” fee if owners’ committees buy insurance elsewhere. 

The review panel is due to report to the state government by December 1.