An industry monitor has warned of a “hidden vulnerability” in strata insurance broking agreements that can leave owners’ corporations exposed.

Brokers engaging authorised representatives or distributors who also act as strata managers is smart “on paper” but “there is a catch”, Insurance Brokers Code Compliance Committee senior manager Daniela Kirchlinde says.

“These relationships only work if they are built on clear agreements, proper oversight and a shared commitment to the [broking] code,” Ms Kirchlinde told the National Insurance Brokers Association Convention.

Without transparency, oversight and accountability, the owners’ corporation is put at risk, she says, and the code committee plans to conduct spot checks.

“We will look at obligations regarding how brokers manage conflict of interest, disclose conflict and remuneration, provide training to agents, and oversight compliance by their agents,” Ms Kirchlinde said.

A review of seven brokers with more than 400 authorised representatives and distributors found agent agreements were not compliant with the code. Most relied on vague phrases such as “compliance with relevant law” or “to be read in conjunction with other guidelines”.

None of the reviewed agreements explicitly required agents to comply with the Insurance Brokers Code of Practice, and Ms Kirchlinde says brokers must embed obligations directly.

Remuneration disclosures were often sent only to the strata manager, not the owners’ corporation.

“Brokers often assumed the strata manager would pass it on, but we didn’t see any systems or evidence to verify that this would happen. Without follow-up, without verification, there is no effective oversight,” Ms Kirchlinde said.

Some agreements required the strata manager to “promote the interests of the licensee” in direct conflict with their duty to the owners’ corporation.

“There was no evidence of client consent. This is not optional or can be passed on via agreements. Yet we found that many brokers did not appear to have effective systems to monitor compliance of their agents. We saw no audits or no access to client communications.”

Ms Kirchlinde says contractual clauses are not enough and oversight “must be documented and ongoing. It is a consumer protection issue, and it is a risk to reputation for brokers.”

Brokers need to review and update agent agreements to include code obligations, she says, and implement audits, access to communications and confirmation of disclosures.

“Brokers need to notify clients of material changes and ensure they make disclosures directly to owners’ corporations.”

Rising stars get their chance to shine in the latest Insurance News magazine, as we chat to NIBA award winner Emily-Rose Srbinovska and check in with Suncorp's graduate talent program