Property managers make money off condos’ insurance
Nov 13, 2010
The following article was published in the Miami Herald on November 13, 2010:
Property managers make money off condos’ insurance
Your property management company may be making money off your condo association’s insurance policy.
Some say that’s a conflict of interest because management companies also help associations pick their insurance.
“Referrals should be based on good service only and not financial incentives,” wrote Jerri Franz, a spokeswoman for the Department of Financial Services. On Monday, the department will hold hearings on other perks that insurance agents shouldn’t be allowed to offer, but commission splitting isn’t expected to be among them.
Continental Group, the state’s largest condo property management company, says its sister company, Worthington Insurance, splits commissions with partner insurance agencies – when condos select them – to save money for the condos it manages.
Insurance premiums make up the largest part of most condominium buildings’ expenses and their annual commissions can add up to tens of thousands of dollars.
Board members of some condo associations criticize the commission-sharing arrangement, some defend it, while others say they were not aware of it.
Continental officials say they put the information in writing, as required by state law, and also tell condo board members.
Condo board members rely on their property managers when making a host of decisions. Among them, soliciting and analyzing bids for insurance and other services and making recommendations.
“They carry a lot of clout when it comes to recommendations,” said Paul Mack, president of Mack, Mack & Waltz Insurance Group in Deerfield Beach, which splits commissions for a couple of buildings managed by Continental. The other insurance agency that partners with Continental in South Florida is Smith Watson Parker in Hollywood.
Andrew Lester, Continental’s senior vice president, said the partnerships help property managers do a better job. For instance, he said a Fort Lauderdale condo managed by Continental received a lower quote on their insurance premium from Smith Watson Parker and led its current insurance agent to match the quote.
“To me, that’s a win for our client. I love it,” he said. If Continental “wasn’t in the insurance business, it wouldn’t be able to influence the market like that.”
Like Continental, Castle Group in Plantation, which manages more than 200 condo associations in the state, also is in the insurance business. The company has an in-house insurance agency and it owns a security company.
“It is a conflict,” acknowledged James Donnelly, Castle’s president. He said his company’s property managers address that by staying out of bids dealing with insurance or security: The sealed bids are sent directly to the board.
Travers Hartnett, an insurance agent for homeowner and condominium associations, said property managers gain competitive information for their affiliate insurance agencies.
“It’s not intended to be something bad. But the way it operates in the real world, it’s a real disincentive for all parties to get a better deal,” said Hartnett, owner of Travers Hartnett Insurance Agency in Delray Beach. “The preferred agent is…in some cases, given more information than they should.”
The state is considering rules to clarify a state law that prohibits rebates to condo associations or other policyholders to buy insurance, such as an agent paying for an appraisal or lowering commissions.
Lester said Continental offers insurance services to “provide …. as many options and as much education as possible. … Some board members say, ‘No thank you. We know you’re providing that service, but we feel there is a conflict of interest.’ We say, ‘Great.'”
A “no thanks” doesn’t guarantee the property manager will back down. Continental offered its insurance service several times to a condo association in central Broward County, based on three notes from company representatives and a letter from the preferred insurance agent.
“I cannot tell you how many times Continental tried to persuade me to change insurance agents,” said the condo association’s board president, who said she does not want to be identified until her building finds a new property manager.
She said her decision was partly based on a bad experience with another Continental affiliate whose employee repeatedly showed up after hours for projects and then tried to bill for overtime.
Several board members said Continental representatives offered them tickets to sporting events.
State law prohibits board members and property managers from accepting anything of value from people providing or proposing to provide services to the association.
Continental executives said it’s against company policy to give gifts to condo board members – and that’s reviewed during employee training.
“We don’t promote that so I have no knowledge of any of property managers offering tickets,” said Tim O’Keefe, the chief executive officer of Continental. He added that the company does not have box seats to sporting events.
Several condo board members said they’re pleased with Continental and don’t mind the commission-sharing arrangements.
Larry Rosenberg, board president of Delray Grande Condominium Association in Delray Beach, said he didn’t know the roughly $10,000 annual insurance commission his building pays is split up between Continental’s affiliate and Smith Watson Parker.
But he said the board probably would have gone with the insurance agency anyway because its price was so much lower than others. “I don’t think it would have changed” anything, Rosenberg said. “It was a no-brainer…We did our homework.”
Some insurance agents say they’ve chosen not to participate in commission-sharing. “We don’t think they’re legal..We don’t practice that because it’s rebating of insurance,” said Tom Lynch, president of Plastridge Insurance Agency and a board member for state-backed Citizens Property Insurance.
Representatives of Smith Watson Parker said other agents criticize the agreements because they’re forced to compete.
“We get an introduction that we might not otherwise get. That’s what we feel we’re paying for…We don’t get any special information or any special treatment,” said Andrew Spargo, the agency’s chief operating officer.
Like other property management companies, Continental and its publicly traded parent company, FirstService Corp., own several subsidiaries that may be recommended by property managers when condo boards are looking to hire electricians, plumbers and gardeners.
State law requires property managers to disclose to condos they manage if they have a financial interest in vendors, but it does not bar them from applying for the work, said Alexis Lambert, a spokeswoman for the state’s Department of Business & Professional Regulation, which regulates businesses and condos.
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