Industry consultant John Trowbridge has backed the Strata Community Association NSW decision to phase out insurance commissions and has outlined steps underwriters and brokers should take.

Mr Trowbridge, who completed a review of strata sector practices, says the SCA action is a welcome self-regulatory initiative and ending the “long-standing and entrenched” practice of sharing commissions or broker fees is a courageous move.

“It is a practice that contains an inherent conflict of interest and potential breaches of fiduciary duty,” he said today. “The phasing out is also a logical extension of the new disclosure regime in NSW.”

Mr Trowbridge has outlined four steps that should follow through progressive implementation of the changes in the strata insurance financial chain.

Underwriters including commissions in their premiums should reduce each total premium by 20% of the base premium.

Brokers that receive and share commissions should modify their fees to a level commensurate with their own services, commonly about 10%-13% of net premium.  

Those operating only on shared fees should reduce those by 50%-60%.  

Strata managers should replace the fee or commission income with an increase in management fees funded from the owners’ savings in premiums and/or broker fees.

“The next stage in this unfolding story is effective and genuine implementation of the above four steps in the best interests of lot owners,” Mr Trowbridge said.

The Australian College of Strata Lawyers has also supported the SCA plan to phase out accepting commissions in NSW from January.

“This reform is an important step towards transparency, professionalism and integrity in strata management,” president Michael Kleinschmidt said. “It aligns with ACSL’s long-standing position that strata managers, as fiduciaries, must not profit through commissions, payments or benefits which ultimately add to the costs of their clients.”