It’s been over ten years since the NSW regulations with respect to Strata Insurance changed, requiring Strata Managers to obtain three quotes. Now the NSW government is looking to tighten laws to improve transparency and conflicts of interests – a move supported by the Insurance Council of Australia and the National Insurance Brokers Association. The initial regulations were driven by the perceived need to protect owners (consumers) and drive down the cost of strata insurance. This created a scramble initially, as Strata Managers didn’t really have the capacity nor the capability to provide these quotes. Rather, more insurance brokers were engaged to process and price these quotes. However, even the brokers struggled to deliver as there was a lack of suitably qualified resources to process the volumes required. The number of quotes required grew substantially and process efficiency was hindered by the lack of technology employed to undertake the work. Everything was done manually with multiple entry of the same data set required in order to arrive at the number of necessary quotes.
As a result of the change in regulations there were also a number of unintended consequences:
1. The overall cost of strata insurance increased to accommodate the additional 15% + broker fees. Strata insurance is one of the few insurance policies where distribution costs can account for 35% of the base premium. This is unconscionable.
2. Because of the lack of technology, automation and poor data management, customer experience generally became worse, particularly in the claims and service space
3. Some participants in the value chain became “creative”, developing structures and processes to gain maximum benefit for strata managers and brokers, all without proper disclosure. Breaches of basic fiduciary duties abound!
The upshot of all of this has been that regulation designed to enhance value for the customer has, in many cases resulted in the exact opposite. Certainly, a disappointing result.
Improved use of technology is clearly the obvious answer to improve strata insurance quotations and save the client money. The biggest improvement is in saving time and increasing transparency. Insurance commission has been the drug propping up the Strata bottom line for too long. You cannot totally remove a Strata Manager from fulfilling the insurance requirement, but transform their role into a fee for service and make the whole process highly transparent.
A self-service quote portal is an alternative to how insurance typically works today in Strata. By allowing authorised parties (Strata Manager or Committee member) to access a website, call up details of their building and within a minute or two be able to obtain multiple quotes is not only efficient, but very insurance cost effective. Most other insurances are available online and obtained via self-service. Strata insurance is reasonably complex, given the diversity in risks. However, 70 percent of the buildings could be quoted and bound using technology without the need for human processing. This could mean that strata insurance would potentially be 25% cheaper than it is today, as broker fees and strata manager’s commission is taken out of the equation and replaced with a much simpler fee to use the quote engine/platform.
How could we automate all of this? Your insurance platform should be able to effectively manage strata insurance, quoting, binding, paying claims and managing the entire insurance process. For example, iBAIS, the Australian platform has managed 250,000 strata policies with and produced close to 4 million strata insurance quotes during its 30 year evolution.
Many brokers are now actively interrogating their data to improve the quotation process. Simply inputting a Strata Plan number could pre-populate the requisite data and inputs, making it very easy to obtain transparent quotes without pain and avoiding all the conflicts of interest.
The capabilities of technology to automate are obvious with a consequential reduction in cost and complexity available too. A solution to creating a better outcome for lot owners is within our grasp. It is not that difficult and would avoid all the “evil” things we are currently reading about in the Strata insurance space.
Photo by Gabriel Castles on Unsplash
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