Unit Owners Beware!
31 October 2016 Fiona Eccles
Insurance costs can be a major part of your Body Corporate Levies…..
Do you know what you're paying for???
There are two ways that your Strata insurance policy can be effected on your behalf. One is by the Strata Manager using an insurance broker. The second is by the Strata Manager effecting the cover directly on your behalf with an Insurance Company with whom they have a license. So what’s the difference between the two and how does this affect you as an insurance purchaser. Let’s take each one separately.
Using an insurance broker versus the Strata Manager as a Licensed Representative
I will restrain from using legal jargon here to keep you awake and for ease of explanation…
Where your strata manager has engaged an Insurance Broker, they are there to represent the Body Corporate in all matters regarding insurance. The benefits for the Body Corporate are, that the Insurance Broker will seek the most appropriate cover for your Strata Complex along with assisting throughout the claims process. Insurance Brokers have access to markets that the general public do not have access to, along with many years of experience in understanding what the policies have to offer.
The number one priority of an Insurance Broker is that they act on behalf of the Insured, ie the Body Corporate – NOT the insurance company. They have a duty to act in the best interest of the body corporate.
They are remunerated via commission taken from the base premium and sometimes a separate administration/broker fee is also added on.
There have been some incidents where brokers remove the commission element from the insurance premium (referred to as “netting back the premium”), and charge a substantial broker fee instead. (In some circumstances they share the commission with the strata manager). THIS SHOULD BE DISCLOSED TO THE BODY CORPORATE BY THE STRATA MANAGER.
Do you know how much of your “insurance charge” is made up of the fees, commission earnt and statutory charges? You as the policy buyer have every right to ask the question and be provided with the breakdown!!
The second method of having your insurance policy arranged is where your Strata Manager is effecting the cover directly with an Insurer as an Authorised Licensed Representative. In this scenario, they are in fact acting on behalf of the Insurance Company and NOT the Body Corporate.
What this means is not only may they be taking a higher commission from the Insurance Company, but there is little to no negotiation in regards to insurance costs and claims handling. They are not representing your best interests. In addition, in many cases, the “Insurance Manager” working for the Strata Manager have very little experience in insurance broking and do not have to comply with the strict compliance required surrounding conducting of their business as a licensed insurance broker does.
There are only a handful of Insurance Companies that operate with Strata Managers as their Licensed Representatives – Insurance Brokers have access to these companies PLUS many more.
Some questions you may want to ask your Strata Manager?
- Who is the insurer of your strata policy?
- How have they been engaged, i.e. through an Insurance Broker or via the Strata Manager acting as an Authorised Representative of the Insurance Company?
- How is the total cost made up between premium, statutory charges (such as GST & Stamp Duty which is now nil in the ACT), fees and commissions?
- When was the building sum insured last reviewed (and who decided on the amount)? Was this as a result of an Insurance Valuation?
Apologies if I’ve disrupted your sleep patterns now!