Strata Insurance Reforms in Australia 2026: Commission Transparency and Underinsurance Risks

Strata insurance in Australia is undergoing its most significant reform in years. In New South Wales, sweeping changes to commission transparency, remuneration disclosure, and capital works planning are reshaping how strata owners corporations manage their insurance obligations. At the same time, rising construction costs have created a systemic underinsurance crisis that threatens to leave thousands of strata owners financially exposed when disaster strikes. Understanding these changes — and working with a qualified insurance broker — has never been more important.

Understanding Strata Insurance in Australia

Strata insurance is a mandatory requirement for owners corporations across Australia. Unlike standard home and contents insurance, strata insurance covers the common property, building structure, and shared facilities of a strata scheme. Individual lot owners are responsible for insuring their own contents and any improvements they have made to their lot.

The owners corporation — the collective body of all lot owners — is legally required to insure the building at its full replacement value. This means the sum insured must cover the complete cost of demolishing and rebuilding the entire structure, including professional fees, debris removal, and compliance with current building codes. Getting this figure wrong can have catastrophic financial consequences for all lot owners.

Strata insurance is typically arranged through a strata manager, who may engage an insurance broker or deal directly with an insurer. This arrangement has historically involved commissions paid to strata managers and brokers — a practice that is now under intense regulatory scrutiny.

The 2026 NSW Strata Insurance Commission Reforms

New South Wales has led the nation in reforming strata insurance remuneration practices. The changes reflect growing concern that commission-based arrangements create conflicts of interest that may not serve the best interests of strata owners.

Key reforms that took effect in 2026 include:

• Phased commission replacement by SCA NSW — The Strata Community Association NSW commenced a phased replacement of insurance commissions for its members from 1 January 2026. New management contracts signed from that date are subject to the transition, with the industry expected to move fully to fee-for-service arrangements within three years.
• Mandatory disclosure requirements — Since February 2025, NSW strata managers have been required to disclose all relationships with suppliers, provide detailed breakdowns of insurance quotes including commissions and broker fees, and obtain written consent before entering into contracts involving commissions.
• Legislative review underway — The NSW Productivity and Equality Commission has been examining whether to implement a state-wide legislative ban on insurance commissions in strata management. The Commission's findings are expected to inform further regulatory action.
• Prohibition on commissions for owner-arranged insurance — Strata managers are now prohibited from receiving insurance commissions where owners choose to source and arrange insurance independently.

These reforms are fundamentally altering the relationship between strata managers, insurance brokers, and owners corporations. The industry is moving from a "closed market" model — where intermediaries set remuneration without meaningful oversight — toward an "open market" model where consumers can clearly distinguish between management fees and insurance costs.

The Underinsurance Crisis: Why Replacement Value Matters

While commission reform dominates regulatory headlines, the more immediate financial risk facing strata owners is underinsurance. Construction costs across Australia have risen dramatically in recent years, driven by labour shortages, supply chain disruptions, and increased material costs. Many strata buildings are insured at values that were set years ago and have not kept pace with these increases.

The consequences of underinsurance can be severe. If a building is destroyed or severely damaged and the sum insured is insufficient to cover the full cost of rebuilding, the shortfall must be funded by the owners corporation — meaning individual lot owners may face significant special levies at the worst possible time.

Several factors contribute to the underinsurance problem in strata:

• Outdated valuations — Many strata schemes have not had their buildings professionally valued in recent years. While mandatory five-year valuations were removed from NSW legislation, accurate assessments remain essential to ensure adequate coverage.
• CPI indexation gaps — Some policies include automatic CPI indexation, but general inflation indices may not accurately reflect the specific cost increases in the construction sector.
• Failure to account for compliance costs — Modern building codes are significantly more stringent than those that applied when many strata buildings were constructed. Rebuilding to current standards can cost substantially more than rebuilding to the original specification.
• Exclusion of professional fees — Architects, engineers, surveyors, and project managers all add to the cost of rebuilding. These fees must be included in the sum insured.

Common Mistakes Strata Owners Make with Insurance

Beyond underinsurance, strata owners corporations frequently make other insurance mistakes that leave them exposed to financial risk.

• Accepting the cheapest quote without scrutiny — The lowest premium does not always represent the best value. Policy exclusions, sub-limits, and claims handling quality vary significantly between insurers.
• Failing to review the policy annually — Strata schemes change over time. Renovations, new common property assets, and changes in occupancy can all affect the adequacy of existing coverage.
• Not understanding what is and is not covered — Many strata owners are unclear about the boundary between building insurance (the owners corporation's responsibility) and contents insurance (the individual lot owner's responsibility). This can lead to disputes and coverage gaps after a loss.
• Ignoring public liability coverage — Strata insurance must include public liability coverage for the common property. Inadequate limits can expose the owners corporation to significant financial risk if a visitor is injured on common property.
• Not seeking independent advice — Relying solely on the strata manager's recommendation without obtaining independent advice from a qualified insurance broker may not result in the most appropriate coverage.

Australian Regulatory Context: ASIC, AFCA, and State Legislation

Strata insurance in Australia operates within a complex regulatory framework that spans both federal and state legislation.

At the federal level, insurance brokers who arrange strata insurance must hold an Australian Financial Services (AFS) licence issued by ASIC, or operate as an authorised representative of a licensee. They are subject to the best interests duty under the Corporations Act 2001 and must comply with the Insurance Brokers Code of Practice administered by the National Insurance Brokers Association (NIBA).

The Australian Financial Complaints Authority (AFCA) provides a free dispute resolution service for consumers who have complaints about insurance products or the conduct of insurance brokers. Strata owners who believe they have been treated unfairly by an insurer or broker can lodge a complaint with AFCA without needing to engage a lawyer.

At the state level, strata legislation in each jurisdiction sets out the specific insurance obligations of owners corporations. In NSW, the Strata Schemes Management Act 2015 governs strata insurance requirements. Similar legislation applies in Victoria, Queensland, Western Australia, and other states, with varying requirements around mandatory coverage, disclosure, and valuation.

The 2026 NSW reforms represent the most significant state-level intervention in strata insurance since the introduction of mandatory disclosure requirements. Other states are watching closely, and similar reforms may follow.

How a Qualified Insurance Broker Can Help Strata Owners

In this complex and rapidly changing environment, a qualified insurance broker provides strata owners corporations with expertise and advocacy that a strata manager alone cannot offer.

A specialist strata insurance broker can:

• Conduct a comprehensive coverage review — Assessing the current policy against the owners corporation's actual risk profile, identifying gaps, and recommending appropriate coverage levels.
• Arrange an independent building valuation — Connecting the owners corporation with a qualified valuer to establish an accurate replacement value and eliminate underinsurance risk.
• Access a broad panel of insurers — Unlike a strata manager who may have a preferred insurer relationship, an independent broker can approach multiple insurers to obtain competitive quotes and identify the most appropriate policy terms.
• Provide transparent remuneration disclosure — Under the reformed framework, a reputable broker will clearly disclose their remuneration structure, whether fee-for-service or commission-based, so the owners corporation can make an informed decision.
• Assist with claims management — When a claim arises, a broker acts as the owners corporation's advocate with the insurer, helping to navigate the claims process and achieve a fair outcome.

Questions to Ask When Choosing a Strata Insurance Broker

Selecting the right insurance broker for your strata scheme is an important decision. The following questions will help you identify a broker who is genuinely qualified and committed to your interests.

1. Do you hold an AFS licence or operate as an authorised representative? — Verify their licence status on the ASIC Connect Professional Registers before engaging their services.
2. How are you remunerated for arranging our strata insurance? — Ask for a clear breakdown of any commissions, fees, or other benefits they receive in connection with your policy.
3. Do you specialise in strata insurance? — Strata insurance has unique characteristics. A broker with specific strata expertise will be better placed to identify appropriate coverage and negotiate favourable terms.
4. Can you arrange an independent building valuation? — A proactive broker will recommend a professional valuation to ensure the sum insured accurately reflects current replacement costs.
5. How many insurers do you approach when obtaining quotes? — A broker who accesses a broad panel of insurers is more likely to identify competitive pricing and appropriate policy terms.
6. What is your claims support process? — Understanding how the broker will assist you in the event of a claim is essential before you commit to their services.

How MyMoney® Can Help Your Owners Corporation

Finding a qualified strata insurance broker who understands the 2026 reforms and can protect your owners corporation from underinsurance risk is straightforward with MyMoney®.

You can post a brief on MyMoney® describing your strata scheme, current coverage, and specific concerns. Qualified insurance brokers with strata expertise will respond with tailored proposals, allowing your owners corporation to compare their credentials, approach, and remuneration structure before making any commitment.

You can also browse insurance brokers on MyMoney® to review profiles and areas of specialisation. Whether your strata scheme is a small residential block or a large mixed-use development, MyMoney® connects you with professionals who have the expertise to navigate Australia's evolving strata insurance landscape.

With strata insurance reform accelerating and underinsurance risks growing, now is the time to ensure your owners corporation has the right coverage and the right professional advice in place.