Steadfast Group, Australia’s largest general insurance broker network, has halted trading on the Australian Stock Exchange (ASX) following allegations of misleading clients.
The Australian Broadcasting Corporation (ABC) had reported that undisclosed financial arrangements between insurance companies, brokers, and strata managers were inflating insurance costs for property owners.
One specific allegation involved a Steadfast-owned broker, who was engaged by a Sydney owners’ corporation to provide insurance quotes for their residential building. The broker allegedly recommended a more expensive policy from a Steadfast-owned firm while concealing a cheaper quote from a competitor.
Steadfast has denied the allegations. In a statement to the ASX, the company requested a trading halt until it could respond to the ABC’s story or until the opening of trade on Wednesday morning, whichever came first.
Steadfast is responsible for brokering approximately 40% and underwriting 55% of strata insurance in Australia.
The allegations have prompted the chair of the Australian Competition and Consumer Commission (ACCC), Gina Cass-Gottlieb, to call for a ban on paid commissions on strata insurance. Cass-Gottlieb stated, “There are a set of hidden arrangements that are … not disclosed, but also circumvent disclosure of fees. The receipt of hidden payments and commissions of whatever nature is misleading consumers.”
Cass-Gottlieb added that enhanced disclosure obligations did not address the core issue, which was the financial incentive. “Even with the disclosure, the strata manager, the insurance broker, continues to have the financial incentive, and that includes a financial incentive not to recommend lower priced insurance,” she said.
Steadfast Group chief executive Robert Kelly denied the company had misled its clients. He told the ABC, “The payment systems had not been designed to bypass ordinary disclosure obligations by strata managers, but that it was strata managers’ jobs to disclose financial arrangements, not Steadfast’s.”
The company’s share price dropped by 6.14% on Monday morning to $5.96.
In May, the New South Wales (NSW) government launched a review into strata management company Netstrata after allegations of excessive insurance brokerage fees and undisclosed kickbacks.
John Minns, the NSW Strata and Property Services Commissioner, announced the investigation following an ABC report. The report claimed that Netstrata’s subsidiary, Strata Insurance Services, charged fees up to three times higher than the industry norm, accruing over AU$21m (US$13.7m) since 2015.
In response, Netstrata’s Managing Director, Stephen Brell, stepped down temporarily from his role in the Strata Community Association, and the business said it had begun an internal audit and pledged to improve its disclosure practices.
The Strata Community Association Australasia in March had announced measures to enhance transparency, including the early adoption of a Best Practice Insurance Disclosure Guide. The Australian Consumers Insurance Lobby (ACIL) released a survey in April highlighting ongoing issues in the strata insurance industry, calling for a government inquiry.
