What Does the ACCC’s Final Report Into Insurance in Northern Australia Mean for Strata?

The ACCC released their final report on insurance in Northern Australia late last year as the conclusion of a three-year inquiry. The final report delivered 38 recommendations across 592 pages, however, there were a handful that were highly relevant to everyone in the strata sector.

The 592-page report explored in detail the strata, home and contents insurance markets and provided insights into the market. Read on for some quick takeaways from the report as background to the 38 recommendations.

• Since 2011, non-insurance rates have increased in Northern Australia by between 7 and 9 percent.
• Since 2011, 178 percent increase in premiums in Northern Australia versus 52 percent elsewhere.
• Northern Australians $2,500 premium versus national average $1,400.
• Northern Australians paid $79.6 million in stamp duties in 2018-19.
• Between 2007 and 2012, strata insurance premiums in North Queensland had increased by over 300%.

The recommendations – what is relevant to strata?

There are three recommendations that are the most impactful to strata in the report, and then a handful of other relevant, and encouraging recommendations.

Recommendation 8.1 if governments want to provide immediate relief to consumers facing acute affordability pressures, they should consider direct subsidies over other measures.

If implemented, direct subsidies would be paid to individuals who hold strata insurance to directly reduce their cost burden of taking out a policy. There is also a lot to like about direct subsidies to reduce costs for the consumer. If there is enough money made available, they can be very effective because they are a targeted measure that can be implemented immediately. There is, however, a high degree of difficulty in ensuring eligibility requirements are developed and administered effectively, enough money is put aside, the payments are ongoing and there is not a negative market distortion.

SCA in its advice to the ACCC has advocated for the formation of a reinsurance pool to provide adequate cover in the case of a future event and will continue to work with governments to explore the exact means of government intervention.

Recommendation 3.1 abolish stamp duty on home, contents and strata insurance products.

Affordability and availability have been the most common issues faced by people living in apartments, townhouses, and strata-titled properties.

Stamp duties account for up to 10 percent of the premium price, so when you are looking at the average premium of $2,500 in Northern Australia, that is an immediate $250 that each consumer could be putting back in their pocket.

Abolishing stamp duty on insurance is one of the quickest and most effective means to reduce insurance costs.

There was a suite of measures also relating to stamp duty, including rebasing the stamp duty and directing the funds towards mitigation efforts.

Dependent on jurisdiction, however, there are many additional taxes and duties that have significant impact on insurance costs, including emergency levies, GST and others, that need to be analysed for their impact and worked through with the industry.

Recommendation 19.2 – strata managers to be remunerated by body corporate only.

There were two parts to this recommendation, with the report saying:

• State and territory legislation governing strata managers should be amended to prohibit strata managers from accepting payments in relation to arranging strata insurance other than those agreed to, and made by, their body corporate.
• Strata managers should be required to negotiate any fees or payments for arranging insurance directly with the body corporate they are servicing. This would encourage remuneration arrangements that better align the interests of the strata manager and their clients.

SCA is raising the profile of strata managers and in particular, the important and time-consuming work they do in relation to insurance. Strata managers are critical to keeping the consumer informed, sourcing insurance policies, negotiating terms and conditions, processing claims, renewing policies and filing reports and updates based on building repairs and maintenance.

What we want to see from government and through our advocacy is a system and reform based on evidence that recognises and promotes the value that strata managers bring in providing the consumer with detailed information and performance that guides them towards good consumer outcomes.

Other Important Recommendations:

There are also a great number of sensible recommendations made in the report and SCA is supportive of the recommendations relating to:

• Standardising definitions of events such as ‘storm’ or ‘action of the sea’.
• Making it easier to compare insurance products.
• Improving building standards and protections

SCA’s Advocacy

Strata Community Association (SCA) has been vocal in reiterating its long-held positions on affordability and availability of insurance, the need for government intervention in the market and the critical role strata managers play in securing good outcomes for consumers.

To aid the work of government and stakeholders within the strata industry to achieve good outcomes for consumers, SCA has formed a national taskforce with the goal of advising stakeholders in each state and territory. The SCA taskforce has commissioned a comprehensive report into strata insurance in Australia, due to be released in mid-2021.

We are looking forward to sharing the findings and engaging with government and stakeholders throughout the first and second halves of 2021.

This article was contributed by Andrew Chambers, President – SCA (National)