And why your Strata Manager might be getting more than their fair share of pizza.
Who Should Care About This
If you live in a residential apartment, rent space in a commercial office block, an industrial complex, or even retail premises, you are almost certainly part of a body corporate or strata scheme.
You (the collective of all tenants) need insurance: it covers the building (your biggest asset) against fire, storm, damage, and liability. Without it, one disaster could wipe out everyone’s investment.
The Strata Manager’s role is to make life easier: handle admin, coordinate repairs, run meetings, and yes, arrange insurance.
Strata Insurance – Quick Insights to Expose The Rort:
Strata insurance is one of the easiest covers to arrange and one of the most profitable for brokers. It covers a valuable and large asset (the building), and requirements do not change – the building is the building. Once the initial requirements have been gathered, renewals are very straightforward.
This is why brokers love it. Some large brokers even own Strata Management companies. WTF? One manages a building – fixes lifts, arranges cleaning, helps arrange insurance etc – and the other places insurance……they own them to double down on this opportunity:
- Broker gives seemingly preferential rate to Strata Manager (who works for the same company)
- Strata Manager recommends this amazing offer (which includes the fat mentioned) to the Strata Committee
- The Strata Committee (usually unaware of the commission they are funding) agrees and the cost is borne by the Tenants
A small, modern office block in Melbourne, i.e nothing complicated to insure
Total premium = $35,000 a year
of that
5,000
goes to the broker
(maybe 3–4 hours of work)
4,000
goes to Strata Manager
(who already gets paid by the tenants)
That’s $9,000, or 36%, in fees for a basic insurance renewal.
It’s like ordering a pizza advertised at $14. Later, you discover: $10 paid for the pizza, $2 went to the delivery guy, and another $2 to the cook, both of whom already get paid from the $10 the pizza should cost.
You thought you were buying dinner. Turns out, you were funding a bonus system you never agreed to.
It Gets Worse.
Strata Managers often recommend a broker. But not just any broker — usually the one who pays them the biggest commission or “service fee.” As per the example above, these fees/commissions are a percentage of the premium paid by the tenants. So, not only are there errant commissions built in, but both the Broker and the Strata Manager are financially incentivised to make the Premium bigger so they get more money! Yes, the guy you are paying could be driving your costs up 🤦
That means your premium is higher than it needs to be. And the tenants, who are the ones actually footing the bill, aren’t told about it.
Tenants want the best cover at the lowest price. In this scenario, Strata Managers and brokers get more if you pay more.
This Isn’t Rare.
This isn’t a freak case. It’s how the system works — and it’s been going on for years. The Government has even taken a look at it because of the cosy arrangements between Strata Managers and brokers.
Think of it like airline “fuel surcharges.” For years, airlines added hefty “surcharges” on tickets, even when fuel prices fell. Customers paid billions extra before regulators stepped in and the practice was mostly stamped out.
Hidden fees always look normal…cos, er, they are hidden…. until someone shines a light on them.
Why Do We Not Like It?
- Strata Managers already get paid by tenants. Adding commission is double-dipping
- Brokers do need to get paid, but their fee should match the work. For simple strata policies, the work isn’t huge
- None of this is explained up front. Tenants just get told, “Here’s your premium,” with no breakdown.
- Strata Managers and brokers are incentivised to increase, not reduce your insurance premium (yuk)
What tenants can do.
If you’re on a Strata Committee, make this your next agenda item. Ask:
- Can you show us the full breakdown of commissions and fees in the premium?
- Are you (Strata Manager) receiving payments or benefits from the broker?Can you show us the full breakdown of commissions and fees in the premium?
- How many quotes were sourced, and can we see them?
- Could we move to a fixed-fee broker arrangement instead?
Pro Tip
If your Strata Manager starts to fidget in his seat, you might be onto something.
Insurance is essential. Hidden commissions are not.
Just because “that’s how it’s always been done” doesn’t mean it’s right. The system only changes when tenants and owners start asking awkward questions.
At Luma, we don’t clip the ticket. We charge a fixed fee, tell you what it is upfront, and make sure the cover is fit for purpose. No secret pizza slices included 🍕🙅.
Tired of the Strata Insurance Rort?