Chapter 4 Improving transparency, flexibility and choice
This chapter examines a range of issues relating to improving
transparency in the factors impacting on strata title insurance premiums and
options to increase flexibility in tailoring insurance cover.
The range of factors considered include:
n claims history,
n excess levels, and
n full replacement
cover and building codes.
The purpose in considering transparency and flexibility is to enable Body
Corporates and unit owners to make more informed choices in their insurance
arrangements. By examining the current constraints on the insurance market, the
further aim is to attract greater choice back into the strata title insurance
market in north Queensland.
While the Committee did not seek evidence on the capacity of insurers to
offer bundling for strata insurance and the range of insurance products they
offer, the Committee sees potential benefits for both insurers and their
customers in offering discounts on multiple policies. The lack of bundled
offers for strata insurance and other policies was raised during the Cairns
Body Corporate managers may be unit owners who volunteer or are paid a
fee to manage the business needs of their strata title complex, including
sourcing insurance either directly through an insurance company or through an
insurance broker. Alternatively a strata title complex may employ the services
of a management company to act as their Body Corporate manager.
Under the BCCM Act in Queensland, a person is a Body Corporate manager
for a strata scheme if:
the person is engaged by the Body Corporate (other than as an
employee of the Body Corporate) to supply administrative services to the Body
Corporate, whether or not the person is also engaged to carry out the functions
of a committee, and the executive members of a committee, for a Body Corporate.
As policy premium costs have increased, so have the commission costs (such
as Body Corporate manager or insurance broker fees) that are added to premiums
and then passed on to individual unit owners. While commission costs are not
drivers of premium increases, their commensurate dollar value rises as premium
costs rise, and so they therefore contribute to overall price increases.
A number of issues were raised in relation to the fees and commissions
n the independence and
accountability of those accepting commissions,
n the transparency of
commissions charged, and
n the value of the
The Committee took evidence from both unit owners who were the Body
Corporate manager for their complex, and from representatives of Body Corporate
management companies. The Committee also spoke to NIBA.
The Committee heard evidence from a number of insurance brokers,
including from NIBA. According to NIBA:
the traditional role of insurance brokers is to:
n Assist customers to
assess and manage their risks, and provide advice on what insurance is appropriate
for the customer's needs,
n assist customers to
arrange and acquire insurance, and
n assist the customer
in relation to any claim that may be made by them under the insurance. 
NIBA claims that brokers are skilled at offering tailored insurance
packages and providing clients (Body Corporates) with detailed information on
insurance options when selecting appropriate cover. They also offer assistance
with submitting claims and suggest that they achieve ‘a higher success rate with
settlements (about 10 percent higher than claims made without a broker)’.
In relation to the independence of advice offered, NIBA concede that in
a small number of instances, the broker acts on behalf of the insurer rather
than the Body Corporate. However, this is not the usual relationship and in
such instances, full disclosure is required:
The NIBA make the qualification that, in limited cases,
insurance brokers may act as agent of the insurer not the insured but where
such a relationship exists the customer is clearly advised up front.
During the public hearing in Canberra, the CEO of NIBA, Mr Dallas Booth,
confirmed that unless particular brokers are acting as agents of insurance
companies, and that relationship has been clearly explained to the customer,
the fiduciary duty of brokers is always to their customers rather than
insurers. This is dictated under financial services regulation.
Body Corporate managers are not bound by the same regulations and are
not necessarily subject to the same fiduciary duty.
NIBA emphasises the difference between qualified insurance brokers and Body
Corporate managers lies in market knowledge and independence. They assert that Body
Corporate managers (a category that includes large companies) play a
significant role in sourcing insurance due to their close relationship with the
Body Corporates they manage.
However, NIBA doubts that Body Corporate managers are able to best serve
the Body Corporate when it comes to sourcing or recommending the most
appropriate and most competitive insurance option. Further, they suggest that
the intervention of Body Corporate managers in negotiating insurance contracts
may have contributed to the diminished involvement of other insurers in the
whether a lack of competition could to some degree be
contributed to by the fact that strata managers act as a conduit in organising
strata insurance. Such managers would typically have a relationship with one or
a limited number of insurers. Unlike a traditional insurance broker they would
not provide personal advice on the most appropriate strata insurance available
for the strata Body Corporate. 
However, some witnesses questioned the accountability and independence
of brokers, suggesting that initial premium prices may have been inflated in
order to ‘cover’ the commission of the broker who then supposedly negotiated a
reduction of the premium price.
Mrs Margaret Shaw, a unit owner and treasurer of her Body Corporate in
Airlie Beach, suggested that the insurance offer provided by one company
indicates them ‘discounting the premium by the 20% [commission] loading’ and
goes on to add that:
the insurance companies actually add the commission onto the
base premium, and then it is split between the brokers and Body Corporate
managers according to their own agreement. 
Body Corporate managers
Body Corporate managers, whether individual unit owners or management
companies, are paid a fee for services. In some instances this fee includes the
task of sourcing insurance for the strata title complex. In other instances,
managers charge a commission in addition to their usual fess to source the
required insurance coverage.
Under the BCCM Act, Body Corporate managers have a legislated code of
conduct, which includes requirements that they:
n have a sound knowledge
of the Act, including the code of practice,
n undertake their
engaged tasks with honesty, fairness, professionalism, skill, care and
n act in the best
interests of the Body Corporate,
n keep the Body
Corporate informed of any developments or issues,
n ensure that employees
comply with the Act and code,
n supply goods and
services at competitive prices,
n keep Body Corporate
records as required by the Act, and
n not engage in
fraudulent, misleading or unconscionable conduct.
A further stipulation in the code relates to conflict of interest,
though this is limited to any conflicts that might arise from the management of
multiple strata schemes.
The response from the Western Australian Government to the
‘Report into the Western Australian Strata Management Industry’ in 2002, noted
that while strata managers are responsible for ensuring they have complied with
the state’s strata laws, the evidence suggested that they can have little
understanding of the relevant law.
The Committee notes that Body Corporate managers in Queensland are
similarly responsible for ensuring that strata schemes comply with relevant
legislation. However, the Committee did not collect evidence on whether strata
managers in Queensland had sufficient knowledge of the relevant Acts (as they
are required to do under the legislated code of conduct). The Committee can
therefore form no conclusions in this regard.
Neither the Act, nor the code specifically mentions or places clear
legislated requirements on the payment or receipt of commissions.
When speaking to individual unit owners, some were unaware of the
commissions paid to Body Corporate managers or had only become aware of the
commissions since querying the premium increases and reading the fine print of
the contracts. Several refer to these commissions, especially when there were
cumulative commissions, as ‘hidden’ costs that add to the burden of strata
Mr Ian Campbell concedes that insurance brokers have a right ‘to make a
quid’, however he objects to ‘Body Corporate managers charging a commission on
arranging that insurance. How many people have got their fingers in the till?’ 
Mr Campbell describes the situation as:
just an absolute rort. We are paying these people a fee to
manage our business and to then have to pay a commission on top of that. I think
is absolutely disgraceful.
Mrs Shaw comments on the size of some commissions paid to Body Corporate
managers. She suggests there is a lack of transparency around these business
dealings and how they might be recorded:
when you consider the premiums for the larger complexes
(replacement value >$10M and >20 units) are now between $77
000 - $180 000, or more, a 20% loading (+GST and stamp duty) is a huge amount
of money which is why the Body Corporate managers do not want it shown on the
The UOAQ are also concerned about the additional commission cost and the
scope for less than objective advice from Body Corporate managers:
In addition to the premium increases there is also a practice
where some Body Corporate Management Companies are receiving a commission for
the insurance they recommend which is accepted and approved by Body Corporate
management committees. These commissions are an additional cost which is paid
for by unit/apartment owners and is in addition to the insurance premiums paid
by unit and apartment owners.
Mrs Shaw expresses concern about the accountability and independence of Body
Corporate managers and brokers when it comes to insurance contracts. She suggests
that both brokers and Body Corporate managers may have a greater allegiance to
insurers as that is where they gain the commission.
The lack of accountability and independence of advice was raised by Mr
David Morgan as a key concern in relation to Body Corporate managers. He
suggests that Body Corporate managers may lack independence and can wield too
much power over the market for strata title insurance because of their close
links with large insurers:
From my observations, the provision of Strata Insurance
Policies in Australia is controlled by a very small group of Large Insurers,
who derive a large percentage of their business through a system of appointing
Strata Managers as their Distributors or Authorised Representatives. Strata
Managers traditionally source the Insurance on behalf of Body Corporates and in
doing so, will in turn, as a Distributor or Authorised Representative, receive
a commission from the Insurer.
Mr Morgan also suggests that some commissions charged were particularly
high and that current business arrangements were not necessarily benefitting Body
Corporates. He adds that this lack of independence could be negatively
impacting on market competitiveness:
Whilst not opposed to the payment of commissions for business
provided, the levels of commissions can range from zero to 20% with the latter
figure appearing to be the norm. Additionally some Insurance Companies act
under ‘Binders’ for other Insurers, which in fact means they are acting for the
other Insurance Company and not the Body Corporate seeking Insurance.
Commissions in these instances can approach 30%.
At these levels of commission it is extremely difficult for
smaller Insurers to compete in providing Strata Insurance as they would in most
cases be unable to generate sufficient policies to allow such percentage
payments to Distributors.
From the evidence received it is apparent that there is a great
variation in commissions charged by Body Corporate managers. However the
Committee also heard of one instance where an insurance broker agreed to waive his
fee to ameliorate the dramatic increases in premium prices.
No doubt, as in any industry, there are a range of operators and
business practices amongst those negotiating strata title insurance. The
Committee commends those who act with integrity and transparency in the
negotiation of insurance on behalf of Body Corporates, particularly those who have
generously waived some fees.
Allegations of lack of transparency, accountability and independence are
concerning, particularly at a time when many unit owners are under such
financial stress. From these accounts there is obviously a need for Body
Corporates to ensure that Body Corporate managers and/or insurance brokers
provide a full disclosure of fees, duties expected and additional commissions.
At the conclusion of this chapter the Committee makes further comment
about addressing transparency and accountability of commissions, and equipping Body
Corporates with greater knowledge to oversee their business affairs.
The Committee notes some contradictory evidence was received in relation
to how excess levels reduce premium prices.
On one hand, the Committee heard evidence from the ICA that raising
excess levels would help reduce premiums. On the other, the Committee heard
that recent increases in premium prices were accompanied by elevated or new
excesses, particularly ‘catastrophe’ or ‘named cyclone’ excesses, and that
these were becoming a standard condition in strata polices.
These ‘one-off’ excesses are discussed in the following section.
In terms of the degree of flexibility enjoyed by Body Corporates in the
balance of premiums versus excesses, the ICA suggests that part of the fault
lies with strata managers, who:
do not always lower premiums with excess or deductible
settings. The setting of appropriate excess payments or retention levels is a
mechanism widely used in insurance markets to reduce upfront premium costs to a
client, by nominating an excess payment to be made at the time of a claim. 
The ICA argues that, in contrast to the residential housing market, the
practice of agreeing to a higher excess in order to secure lower ongoing
premiums is not the norm for strata title complexes:
In the residential strata market there has been a long term
trend by some strata managers to set excess payments as low as $200 for some
aspects of cover, leaving premiums payable by their strata unit holders at very
It was reiterated to the Committee from insurance industry
representatives that small excesses that were payable by individual lot owners
led to a higher number of small or frivolous claims that, in turn, made
insuring strata schemes more costly.
Zurich suggests that low excess levels are having a feedback effect on
claims history, leading to increased premiums. Mr Shaun Feely from Zurich says
that ‘we have a frequency issue that is quite high and that links to the
excesses that are paid, and they are charged at an individual level.’
Mr Whelan from the ICA emphasises that ‘there are flexibilities about
being able to provide a dial down premium for an increased excess.’ He adds
the excess that would be paid on a claim—we are also talking
about claims which do not happen every year—by a unit holder is reasonably
light, it is not a particularly large impost on people if you have a dialled up
excess. So yes it does prevent people putting in small claims which would build
the constant claim profile, which drives the business into loss. Increased
excess will reduce the premium but it also reduces the claims which continue to
feed back into premiums.
Figure 3 A selection of various excess payments and
their impact on typical strata premiums
submission 380, p. 6.
Figure 3, taken from the ICA’s submission, gives an indication of how
various levels of excess payments impact upon typical strata premiums.
The ICA further state that ‘the average excess selected by individual
home homeowners is $500. In some instances strata unit owners have an average
excess per unit of $10.’
The Committee notes the need for Body Corporates to ensure that the
managers or brokers whom they employ on their behalf are investigating all
options to reduce premiums and provide a tailored insurance package with
appropriate excess levels.
While increased excess levels may ameliorate some of the dramatic
premium increases being experienced, they are not the sole driver or the sole
solution to strata title insurance affordability.
The Committee also notes that in some instances, high excess levels are
being set by the insurer for ‘one-off’ catastrophic events, such as named
While insurers are encouraging Body Corporates to set higher excess
levels in order to reduce the frequency of claims and rates of pay-outs, there
was also evidence of extraordinarily high excesses being mandatorily set by
insurers in some circumstances.
Many witnesses referred to the recent addition of large excesses being
charged on policies in the event of ‘named cyclones’.
Ms Linda Tuck, a realtor and investor in strata properties states that
the introduction of these large excesses is significant. While technically
complying with the law by having strata title insurance, the effect of such
large excesses for named cyclone events is that individual unit owners feel
exposed to large losses – which is contrary to the purpose of seeking insurance
cover. Ms Tuck explains that:
If a cyclone does hit, many of the complexes now have ridiculously
high excesses for named cyclones. The highest we have is $25 000, which went up
from $100 plus premium. If we do have a claim, this will essentially take away
half our sinking fund. The knock-on effect would be that either the work does
not get done or owners have to pay a special levy.
Ms Tuck goes on to say that in her experience working with several Body
Corporates to negotiate insurance policies, there is no option to negotiate on
these special excesses. She notes that the level of cyclone excess set is:
mandatory. They still have a $100 excess or a $500 excess for
other claims but for a named cyclone event the least they have is at $10 000
and the most they have is at $25 000. 
Ms Kim Hughes is worried that her strata insurance policy included a $15 000
‘named cyclone’ excess, which excludes cover for storm surge. Ms Hughes finds
it ‘very concerning, given the fact that storm surge is the biggest threat
facing this building complex, yet we are unable to obtain cover for such an
The previous chapter discussed the contribution of claims history as a
cost component to the insurance premium stack. In particular, the ICA suggests
that Queensland experiences a higher number of claims than other parts of the
country, and further that strata title policy holders have a higher frequency
of claims than other types of residential housing. The combination of these
factors adversely impacts the risk profile of strata title complexes in north
While some witnesses dispute that Queensland has a higher claims
frequency than other parts of the country, or that strata title complexes have
a higher claims frequency than residential standalone households, the Committee
must trust the data collated and published by insurers themselves.
The previous chapter includes data provided by the ICA showing that
Queensland contributed to 25 percent of all national insurance claims, despite
contributing only 15 percent to the national premium pool.
Further, the ICA reports that some insurers are experiencing claim
frequencies of 30 percent for their strata portfolios, in comparison to an
average of 10 percent for their residential home portfolios. 
Mr Feely from Zurich notes that, in the north Queensland strata insurance
market, his company is experiencing claim frequencies in the order of 30 to 40
percent, which is far higher than for general insurance.
Notwithstanding these figures, the lack of transparency provided to
customers by insurers about how their strata complex’s history of claims is
factored into the pricing of premiums is a common cause of frustration expressed
during the inquiry. Many submissions the Committee received from owners in
strata schemes express their concerns that their insurance premiums have
increased despite low claim histories.
At the Townsville public hearing, Mr Pavey says that insurance brokers
provide insurers with claims history ‘verbatim’, however, he says that companies
‘do not discount for a good claims history. They knock you back if you have a bad
one. That is essentially the way they deal with it.’
Many witnesses express concerns that the quality of their buildings
under various building codes are not taken into account in the calculation of
their premiums. In particular some witnesses who were unit owners claim that
premiums have unfairly gone up when the buildings have not suffered any damage
during recent weather events.
The Committee notes that with further questioning, some witnesses
concede that the Body Corporate have made claims during those weather events
for damage to trees or fences.
It is not unreasonable to expect that the claims history for strata
title complex will impact on premium levels for future years – regardless of
whether claims are for damage to garden areas or to buildings. For the insurer,
the risk remains of similar damage in the future following a similar weather
However, the issue of claims history is a vexed one and reveals issues
about the provision of information by insurers to Body Corporates, and from Body
Corporates to unit holders.
It was revealed that in many instances a Body Corporate may make a claim
on its insurance without the knowledge of all individual lot owners. It was
also reported that in some instances a unit holder may make a claim without the
full knowledge of the Body Corporate.
This lack of collective responsibility and knowledge is concerning in
light of the consequences for the collective. It is obvious that such a set of
circumstances could encourage a culture of claiming amongst some, with many
unit holders unaware of the claims being made but forced to then bear the costs
of increased premiums.
Again, there is a need for greater transparency in how insurers
determine a claims history based on both locality and the actual building
complex. The Committee notes the recommendations made earlier in this report in
regard to examining the methodologies insurers utilise to assess and price
Additionally there is a need for Body Corporates and Body Corporate
managers to retain greater oversight over their business affairs, including
claims made on strata title insurance. This would enable them to better
negotiate based on a low claims history, and to make more informed choices
about when it is prudent to make an insurance claim.
The Committee makes further comment on these issues at the conclusion of
Another major concern is the lack of transparency in the manner in which
building valuations, and the quality of particular buildings in relation to
building codes and cyclone ratings, are taken into account in the calculation
Throughout the inquiry many witnesses referred to their buildings being
built to improved (and more expensive) cyclone ratings standards and commented
that those buildings emerged relatively unscathed from recent disaster events,
while nearby stand-alone homes suffered substantial, or total losses.
Mr Steven Malcolm, the Managing Director of a building consultancy and
property development company in northern Queensland, directed the Committee’s
attention towards a report produced by the James Cook University’s Cyclone
Mr Malcolm’s assessment of the report, ‘Tropical Cyclone Yasi Structural
Damage to Buildings dated April 2011’, leads him to assert that:
there should be a consideration by the insurance companies of
the performance of different types of buildings, constructed of different types
of materials, and particularly the year of construction i.e. whether the building
was constructed pre-or post 1980 as more than adequately discussed in the
Mr Malcolm notes the changes to building codes implemented in the 1980s,
and the need to discriminate between buildings of different eras.
From 1980 there was a significant change in the structural
construction requirements of the codes that were then legislated at that time. Therefore
the structural damage that was sustained by houses and other buildings during
cyclone Yasi constructed post 1980 was significantly less than those
The point being that the owners of buildings constructed post
1980 should not have to bear the same cost of insurance premiums as that of
older buildings. Whether the roof is of concrete tiles or steel sheeting
appears to be another important consideration.
The author of the report, Dr John Ginger, confirms that recent studies
have shown that:
houses built to current engineering regulations that were
introduced in the early 1980s—have significantly better structural performance
compared to houses built prior to the introduction of these standards.
The rigour of building codes in north Queensland ensures many buildings
can withstand extreme weather events. However, it is also noted that these
codes imposed additional costs should a building require repair.
Additionally, for any building constructed prior to the current building
codes, reconstruction or repair work must comply with current codes and
consequently the costs may be extensive. Compliance with building codes, while
protecting against damage also incurs the risk of costly repairs.
From the evidence received it is unclear the extent to which strata
title insurance policies are being tailored to specific complexes and taking
into account cyclone ratings and compliance with current building codes.
Equally it is unclear the extent to which these same codes impose the risk of
additional costs should a claim for repair be made.
Once more the Committee concludes that it falls primarily to insurers to
improve their communication with clients, including notifying how construction
style, assets covered, claims history and other factors may positively or
adversely impact on a complex’s risk profile.
However, the Committee considers that Body Corporates must accept a
degree of responsibility to ensure that all relevant details, including
adherence to current building codes and a claim-free history, are duly taken
into account by the insurer.
The Committee acknowledges that in the current market of limited
competition, policy holders have limited choices and hence limited negotiation
power. The suite of recommendations set out in this report is intended to
redress the perceived risk profile of strata title schemes and so attract
further competition back into the north Queensland strata title market. This
will assist in restoring the balance of power and provide Body Corporates with
a greater range of options in seeking appropriate cover.
Full replacement cover
While all states and territories require strata title complexes to be
insured for full replacement value, concerns were raised about the lack of
flexibility this allowed Body Corporates in their insurance arrangements.
Evidence received by the Committee to this inquiry is focussed on the
Queensland jurisdiction. Consequently the following sections refer to the
legislative requirement for full replacement cover for strata title complexes
and the possible impact of this requirement for strata title insurance premiums
Mrs Pauline Stirgess suggests that the legal requirement for full
replacement value leads to over-insurance of buildings that are capable of
withstanding the majority of extreme weather events. She states:
the law requires that all Body Corporates are insured for the
full replacement value of any building. This means that we are very much
over-insuring in the majority of buildings. Modern buildings are now built to
strict council requirements to withstand cyclones and they would, even in the
event of a Category 5 cyclone, will withstand most of the damage and perhaps in
the worst case scenarios will only lose the roof or have partial damage to some
apartments from storm damage.
Mr Ian Campell, a unit owner from Port Douglas, believes that current
legislative requirements for insuring strata schemes for full replacement value
are discriminatory and contributes to an anticompetitive market. Mr Campbell
Other than 3rd party motor vehicle insurance, there is to my
knowledge, no other mandatory insurance under QLD legislation (except maybe in
financial contracts). If any entity wish[e]s to insure anything of value, they
are not legally enforced to do so. They can select their own opinion of
Insurable value & negotiate with their insurer a mutually satisfactory
premium. Or they can elect not to insure at all.
Mr Garry Masters asserts that strata schemes should not have to insure
for full replacement value, but rather for the current market value (i.e. sale
price) of the property. Mr Masters says that ‘insuring for total replacement
value has provided the insurers with a total replacement value on which to base
premiums which is more often as not, up to 100% higher than market value’.
In listing the following factors, Mr Masters suggests that many of them
had an inflationary effect on the replacement value of a strata complex:
n Demolition of remaining
parts of the building
n Cost to reclaim the
site and prepare same for rebuilding
n Headworks and local
n All other fees
relating to services to be provided to the new building
n Cost of the materials
and labor to rebuild, and
n Cost of landscaping
and roadworks on site and gaining access to site.
Mr Colin Archer from SCA draws the Committee’s attention to the
practical implications and legal constraints around insuring for less than full
replacement value, particularly for buildings nearing the end of their
habitable life. He notes that, regardless of how old a building was, ‘if
someone gets hurt, you have to maintain it and you have got to insure it as
though it were a new building. There aren't really any options.’ Mr Archer adds
that ‘if it is habitable, you have to insure it for its full replacement value
because you cannot take a lesser value under the Act.’
Certainly the requirement to insure for full replacement value provides
added protection for unit holders in the event of a disaster, but also adds to
premium costs which must be sufficient to cover reconstruction and replacement
of all amenities and assets. Considering the rigour of building codes in north
Queensland, it is more likely that a post-1980 building will withstand an
extreme weather event relatively unscathed, while other infrastructure and
assets in the complex may be significantly damaged.
Currently all aspects of a strata title complex must be insured for full
replacement value. In most instances this puts the replacement valuation
considerably higher than the market value of a complex.
Given that certain elements of shared property might be deemed
non-essential to replace (for example, plants and garden sheds), and that
consensus could be achieved within a Body Corporate on what is necessary to
replace, there is merit in reviewing the legislative requirement across
jurisdictions with the view to introducing greater flexibility in the minimum
insurance cover required. This may provide some scope to reduce premium levels.
In Queensland, as in other states, Body Corporates are required to have
their strata scheme assessed to obtain a full replacement value every five
Assessing replacement value is a more complex task than determining
current market value. The Committee notes that many unit owners do not appear
to understand that the valuation required for strata title insurance purposes refers
to full replacement value, rather than market value.
In addition, the Committee heard of significant variations between full
replacement valuations for the same complex. Such differences can substantially
impact on premium prices. For example, one building was assessed for $25
million, only to be valued by a different assessor for $19 million the same
Concerns were also raised about additional cost factors that contributed
to elevated valuations. In his submission, Mr Warren Pitt says that he had been
given a valuation on his strata scheme and then had an additional 39 percent
added on to account for ‘Cost Escalations, Fees & Charges and Removal of
Debris’. According to Mr Pitt:
The final paragraph from the Valuer’s report states that ‘following
the occurrence of possible catastrophic circumstances the sum insured for
should further be increased’ and the recommendation was a staggering 79%
increase in the ‘Replacement Building Cost’.
The Committee understands the logic for including such components in the
assessment of full replacement value, yet it has concerns about the accuracy of
the methodologies used to arrive at such inflated values. No evidence was
presented to the Committee during this inquiry that unpacked or explained these
The Committee would expect an insurance broker and many Body Corporate
management companies to have some expertise in verifying the validity of a
valuation. Similarly the Committee encourages Body Corporates to take an active
role in understanding how a valuation for full replacement cover has been
assessed and the components contributing to that cost.
Further comment on flexibility in strata title insurance arrangements is
made at the conclusion of the chapter.
The Committee is concerned about the apparent lack of disclosure in the
commissions and apparent hidden discounts negotiated by intermediaries in their
dealings with insurers on behalf of Body Corporates. The Committee sees the
need for honest and transparent disclosure of every component that comprises
strata insurance premiums.
In particular the Committee notes suggestions of a lack of transparency,
accountability and independence from some Body Corporate managers and insurance
brokers. This evidence is anecdotal and in the scope of this inquiry the
Committee did not have the capacity to investigate these allegations.
The Committee is aware of the difference between the roles of Body
Corporate managers and qualified insurance brokers. Insurance brokers are bound
to provide a full disclosure of any relationship that may exist with an
insurer, although it is rare for such a relationship to exist. The broker must
disclose all fees and commissions received from all sources.
The Committee considers that it is incumbent on Body Corporates or the
Body Corporate manager who may be liaising with an insurance broker to ensure
full and obvious disclosure of all information as part of establishing a
contract with the broker.
Where a Body Corporate manager or management company negotiates directly
with an insurer, there are not necessarily the same regulatory obligations
placed on them for disclosure of relationship or commissions. The Committee
considers this a severe deficiency in current requirements.
The Committee considers that Body Corporate managers should be similarly
accountable to their clients, particularly when they act as intermediaries in
negotiating strata title insurance matters.
However, once again an onus must rest with the Body Corporates to
oversee their business affairs and dictate the terms and conditions under which
a Body Corporate manager or management company is engaged to operate on their
The Committee draws no conclusions from the limited evidence received
regarding improper practices on the part of Body Corporate managers or
insurance brokers. However, the issue is sufficiently serious to warrant
further investigation than the Committee was able to undertake.
Consequently, the Committee recommends that the ACCC undertake a
preliminary investigation of the use of intermediaries to negotiate strata
title insurance, with a particular focus on the north Queensland market. The
ACCC should consider whether there is evidence of improper or anticompetitive
behaviour taking place between intermediaries and insurers, and determine
whether a full investigation is required.
The Committee recommends that the Australian Competition and
Consumer Commission undertake an investigation into the use of intermediaries
to negotiate strata title insurance cover, in order to determine whether
there is evidence of improper or anticompetitive behaviours taking place.
The investigation should focus on the Queensland market and
indicate whether there is evidence to suggest a more thorough investigation
is required. The report of the preliminary investigation should be made
public by 1 October 2012.
The Committee is firmly of the view that a number of factors are
combining to excessively increase strata title insurance premiums in north
Queensland. Many of these factors are beyond the control of Body Corporates and
individual lot owners. The purpose of this inquiry is to mobilise urgent action
across a number of fronts to investigate the market failure in this sector, and
bring attention to bear on how insurers are pricing the risk of strata title
complexes in north Queensland.
The Committee anticipates the recommendations made in the previous chapter
will lead to a greater market involvement and a more robust methodology for
That said, the Committee also sees scope for Body Corporates to be
better equipped around their rights and responsibilities when it comes to
managing their affairs. In a tight insurance market with steep premium increases,
there are a number of measures that can be taken to ensure that the most
appropriate and competitive premium price and coverage is achieved.
The Committee also recognises that there are a number of Body Corporates
who are well informed and who have actively pursued all available options
already. However, this does not apply to all Body Corporates and unit holders.
Furthermore, the Committee is aware that the premium for one strata title
complex is influenced by the behaviour of other strata title complexes in the
The Committee has received data which indicates that, overall, strata
title complexes in the north Queensland region have lower excess levels and
higher claim frequency than standalone residences.
Body Corporate structures are complex, and the Committee acknowledges
that individual unit owners will often have had no prior experience in many of
the matters which a Body Corporate must oversee, negotiate, make decisions on
and forecast. In essence, each unit owner when purchasing into a strata title
complex becomes part of a complex business management structure, usually
without training or knowledge of how to access resources to assist them in
Often unit owners outsource their research into a Body Corporate prior
to purchase to a solicitor acting on their behalf in the purchase. Thus, while
the information may be obtained, it is not necessarily known by the purchaser.
The complexity of Body Corporate arrangements is the reason many Body
Corporates employ a manager or management company to direct their affairs.
However even this delegation requires a contractual arrangement and
necessitates the Body Corporate overseeing the performance of the Body
The Committee considers that Australian Consumer Law (ACL) could assist
in the provision of plain English assistance to Body Corporates regarding
The ACL is a cooperative reform of the Australian Government and the
States and Territories, through the Ministerial Council on Consumer Affairs
(MCCA). The ACL framework replaces 20 existing State, Territory and Australian
Government laws with a single consumer law. The ACL provides consumers with a
law that is easier to understand and is better enforced.
Given that the issues raised in this inquiry appear specific to the
Queensland market, the Committee sees a clear role for the Queensland
Commissioner for Body Corporate and Community Management (the Commissioner) to
assist in better equipping individual unit holders and Body Corporates to
competitively manage their affairs.
The role of the Commissioner is to assist people who live, work or
invest in Queensland strata schemes in accordance with the powers conferred on
it by the BCCM Act. The Commissioner’s office provides a range of valuable
information and tools, including an online training course for Body Corporate
members, committees and industry groups.
Similar online resources are offered by Strata Community Australia in New
The Committee acknowledges that some detailed resources and training are
already made available through the Queensland commission. However, the online
training package does not refer to legislative requirements for insurance, how
strata title insurance differs from other forms of insurance, cost factors, and
strategies to consider when negotiating appropriate insurance coverage.
The Committee considers that, while there is a weak strata title
insurance market in north Queensland, it is of paramount importance that Body
Corporates more actively oversee their insurance affairs, ensuring that they
are accessing the most competitive pricing available, and that the insurance
coverage is adequately tailored to their individual complex.
This requires Body Corporates being able to confirm from their manager
or insurance broker that a number of factors have been considered by the
insurer in assessing the individual risk of a strata title complex. Such
factors might include:
n alternative excess
n claim history,
including claim frequency and size of claim pay-outs,
n building materials,
compliance with building codes for main buildings and other structures on the complex,
n cyclone and disaster
resilience of infrastructure and other assets on the complex,
n fire protection
systems and other mitigation devices,
n presence of onsite
n accurate valuation
for full replacement.
The Committee considers that, given the complexity of strata title
arrangements, Body Corporates should have access to improved resources to
assist them in the management of their affairs, in particular in sourcing the
most competitively priced and appropriate insurance cover available.
The Committee recommends that the Australian Government,
through the Australian Consumer Law framework, work with the Insurance
Council of Australia and the Queensland Commissioner for Body Corporate and
Community Management to improve the information and education resources
available to Body Corporates and better equip them in the management of
strata title affairs, with a focus on:
the cost components specific to strata title insurance, such as unlimited
liability, Stamp Duty and GST, and valuations based on full replacement costs,
awareness of the contractual obligations to disclose fees and commissions,
and the responsibilities pertaining to the contractual relationships between
Body Corporates and their appointed managers or management companies, and
and/or insurance brokers, and
of the factors which may contribute to the risk profile of a strata title
complex and in particular factors which may assist in negotiating decreased
premium pricing, such as varying the agreed excess.
The Minister for Financial Services should be provided with a
summary of the measures undertaken to address these needs by 1 December 2012.
The Committee has reviewed the legislative arrangements for Body
Corporates in Queensland and has concluded that there is significant scope for
confusion amongst both consumers and professionals working in the sector. The
Committee notes that strata title arrangements are characterised by a complex
interplay between Australian, state and local government legislation. Given
that the Committee has only focussed on the experiences of Body Corporates in
Queensland in this inquiry, the Committee is aware that the situation is far
more complicated on a national level.
While many of these legislative and regulatory requirements are there
for the protection of individual unit owners, the Committee considers a review
of the extent of these requirements is warranted.
The Committee concludes that full replacement cover for residential
areas of strata title complexes is essential and must not be compromised.
Further, other essential components of a strata tile complex such as shared
access ways must be insured for full replacement cover as part of the common
property of a Body Corporate.
However, there are some aspects of a complex for which it may not be
necessary to secure full replacement cover, if these are non-essential parts of
the complex and if it is the collective agreement of the Body Corporate to cap
the insured value.
The Committee considers there is scope to consider such flexibility. Non-essential
items may include garden areas or sheds – items which are probably of a low
value in proportion to the total value of a complex. However, these may also be
the types of items most susceptible to damage during disaster events such as a
In addition, there are some instances where a complex has a strata title
arrangement in order to cover a small area of common property – such as a
shared driveway or fencing. Given the complexity of strata title arrangements
and the additional requirement they necessitate in relation to insurance, the
Committee recommends that the dissolution of strata titles should be a more
accessible option where this is appropriate.
The Committee repeats its concern that Body Corporate managers may not
be subject to the same regulatory requirements for full disclosure of fees,
commissions or relationships when they undertake an intermediary role to secure
insurance cover. The Committee recommends that these requirements for
transparency, accountability and independence be reviewed and strengthened as
The findings of the Western Australian inquiries into Body Corporate
arrangements suggest that these issues are not confined to Queensland, and that
a legislative review should take into account the complex legislative and
regulatory requirements across all jurisdictions.
The Committee recommends that the Attorney-General conduct a
review of state and territory legislative and regulatory requirements around
strata title insurance. The review should consider:
to provide strata title complexes with greater flexibility in their choice of
insurance arrangements, including the availability of tailored arrangements
that may offer capped insurance cover on non-essential assets or
need to expand the role of the Financial Ombudsman Service to encompass
strata title insurance issues,
requirements to increase transparency in the disclosure of commissions and
fees taken by intermediaries, such as insurance brokers and Body Corporate
to simplify the legal process for the dissolution of strata schemes.
The review should be completed by 1 October 2012. The
findings and recommendations of the review should be raised with the Standing
Committee of Attorneys-General.
The Committee understands that it has become almost impossible to source
residential strata title insurance at sustainable premium levels, particularly
in north Queensland. The Committee is aware that urgent action needs to be
taken to ensure that premium levels do not continue to rise and that Body
Corporates are able to access affordable and appropriate levels of cover.
It was clear to the Committee that increases in residential strata title
insurance have placed many people under serious financial and emotional
pressure. It is understandable that insurance-driven increases in Body
Corporate fees of the magnitude described in this report have made many people
feel extremely anxious about the future, and that it is almost impossible to
budget for these increasing costs.
The Committee is acutely aware of the precarious position these
increases have placed pensioners and retirees in, especially in the aftermath
of the Global Financial Crisis which had such a disastrous impact on many
people’s superannuation and savings.
The Committee is conscious of the potential negative long-term effects
that increases in strata insurance may hold for the economy of coastal north
Queensland. The evidence already suggests a localised decline in property
prices and investment, while the state struggles to get back onto its feet in
the wake of the 2010-11 disaster events.
In its earlier report, In the Wake of Disasters: the operation of the
insurance industry during disaster events, the Committee recommended the
immediate establishment of a taskforce to address the rising costs and
potential market failure in the insurance industry across Australia. The
Committee reaffirms its support for this recommendation and trusts that the
Government will take appropriate action in a timely manner.
The Committee undertook this inquiry with the knowledge that the
affordability of residential strata title insurance is an urgent issue. In
recognition of this urgency, many of the recommendations set out in this report
have clear timeframes associated with them.
The recommendations address the regulatory frameworks, methodologies for
the assessment and pricing of risk, and consumer awareness. They dictate a
strong and clear course of action that will unravel the complex and
interrelated factors contributing to this issue and will enable appropriate reforms
to be implemented.
The Committee confirms its support for a strong and competitive
insurance industry in Australia; one that is able to fulfil its function of
carefully assessing the cost of the risk underwritten and then calculating fair
and equitable premiums accordingly.
The Committee urges the Australian Government to act quickly on the
recommendations contained in this report, to conduct the necessary reviews and
investigations and to carry out appropriate reforms where required and in a
The Committee recommends that the Australian Government
outline the plan of reforms it will undertake, in conjunction with relevant
State and Territory governments where necessary, in order to establish a
competitive and affordable insurance market for residential strata title
The plan should be announced before 1 December 2012, be
informed by the reviews and investigations recommended in this report, and
have a particular focus on the north Queensland area.