cohabit insuranceSmarter insurance for your strata building.
When Fee for Service Still Includes Commission
So which one is better?
The label doesn't tell you. The figures do.
What "commission" actually means
The word means different things depending on where you sit.
For a broker, commission is what the insurer pays for selling, placing or servicing a policy. It's a percentage of the premium, built into the cost the client pays rather than shown as a separate line on an invoice.
In strata, commission usually means a payment from a broker, underwriter or insurer to the strata managing agent for arranging or renewing the owners corporation's policy. Brokers don't tend to call that commission. They call it a referral fee, and it's normally set out in a referral or distribution agreement.
The same strata plan, two ways
Here's how it looks through a broker's eyes. These are dummy terms applied to the same strata plan with the same disclosures.
| Items | Commission (gross terms) | No comission (net terms) |
|---|---|---|
| Base premium | $4,226.60 | $3,122.5 |
| Fire services levy | $504.28 | $370.44 |
| GST | $473.09 | $349.30 |
| Stamp duty | $468.37 | $345.80 |
| Underwriter fee | $100.00 | $100.00 |
| Underwriter GST | $10.00 | $10.00 |
| Total Premium | $5,782.34 | $4,298.12 |
| Brokerage fee | $845.32 | $600.00 |
| Brokerage fee GST | $84.53 | $60.00 |
| Commission payable (built into the base premium) | $845.32 | – |
| Commission GST | $84.53 | – |
| Strata manager fee for insurance services | Not applicable | $1,500.00 (set by the agency, used here for the exercise) |
| Total Payable | $6,712.19 | $6,458.12 |
On these numbers, fee for service saves the owners $254.07. But that saving depends entirely on what the strata manager charges. The manager's fee is at the agency's discretion, and once it goes above about $1,750, owners are paying more than they did under commission.
A separate fee can make a renewal more transparent, and it can save owners money. It can also just be the same money with a new name.
Fee for service doesn't always mean commission-free
The phrase makes people think commissions are gone. That's not always the case.
A broker can charge a brokerage fee and still take commission from the insurer, keeping it rather than passing it to the strata manager. The strata manager then charges its own insurance services fee on top.
That's three layers of remuneration: commission in the premium, a brokerage fee and a strata management fee. Each one might be disclosed somewhere, but you can't see the total unless someone puts them side by side.
This isn't on the strata manager
To be clear, the strata manager isn't the problem. A manager charging a fee for insurance services is doing what the arrangement allows. The broker is the one who knows what the insurer is paying, so the duty to be upfront sits with the broker.
Strata brokers have to disclose this to their clients because owners corporations are classified as retail clients. Unfortunately, more often than not, this isn't happening. Full disclosure means showing any commission received, any fee charged and how they fit together, so the owners corporation isn't left to work it out.
When owners get a genuine reduction
Costs come down when the arrangement is actually restructured, not just relabelled. For example, a broker goes from a brokerage fee plus commission to one disclosed brokerage fee and no commission.
A properly itemised renewal lets the owners corporation compare last year and this year on the same basis and see whether remuneration has really changed.
What to ask before approving a renewal
Owners and committees don't need to be experts in insurance remuneration. They do need a clear explanation of what they're approving, and the broker should be the one giving it.
- Does the premium include commission paid by the insurer?
- Is the broker charging a separate brokerage or service fee?
- Is the strata manager charging an additional insurance services fee?
- Who receives each payment, and what does it cover?
- How does total remuneration compare with last year?
Transparency is the test
Commission doesn't mean poor service. A separate fee doesn't mean a better deal. What matters is whether the owners corporation can see the whole arrangement and judge the value.
Don't stop at the headline premium. Owners should be able to see the insurance cost, every form of intermediary remuneration and what each charge covers. The broker should make that easy. If nobody can explain the figures plainly, it isn't transparent enough.
Is your building ready for renewal?
Better insurance outcomes start with better information. Take our free two-minute Renewal Readiness Check to see what’s ready, identify any gaps and get practical steps to help prepare your building for its next renewal.
