1. Is your advisor a specialist in the field of community schemes?
Any advisor or broker can provide insurance products for a sectional title scheme but few fully understand the ins and outs as well as the different risks associated with community schemes. Your advisor should be familiar with sectional title legislation, sectional title insurance requirements, liability issues pertaining to common property, trustee indemnity, fidelity, prevention of loss, exclusive use areas and the structuring of schedules of replacement value, to name just a few areas where a thorough understanding is required.
2. Does the advisor provide a record of advice in line with community scheme needs?
FAIS (Financial Advisory and Intermediary Services) legislation, more specifically The General code of Conduct in terms of section 15 requires that the representative (broker) maintains a record of the advice and provide the client with a copy of the record of advice.
It is important that when trustees receive advice, they should be provided with a copy of the advice which should happen at least annually upon policy renewal. The advice should meet certain criteria, e.g. reflect the basis on which the advice was given, including a summary of the information and material, the financial products that were considered and the financial products selected with explanation why the selected is being recommended.
A letter of advice addressed from the advisor to the body corporate on renewal is critical in order to comply and ensure that trustees have met their obligations in respect of insurance product selection.
3. Is the intermediary a “tied broker”, offering a group scheme product or independent, offering a range of options?
Intermediaries can enter into binder agreements with insurers or underwriting managers, i.e. they become tied to those agreements. While there may be some short term advantages for the client while the group scheme or book is profitable, there are also a few disadvantages. It is own opinion that it is better for a body corporate to work with a larger broker that specialises in the field who can offer a variety of products and options. In this way, the body corporate is underwritten based on its own risk criteria and not lumped with a group. Trustees should be in a position to manage their risks and negotiate premium, excess and rate in the best interest of all the owners. Trustees can ask for a list of insurers the brokerage works with and to what degree.
4. Does the broker have the resources (infrastructure, systems and experienced, well trained staff) to provide a good service?
Choosing the right broker that will deliver a high level of service when needed is important. Broker staff should understand sectional title and community schemes in order to assist clients effectively. In sectional title, damages may occur across sections that involve multiple owners, common property, exclusive use areas and third party liability claims; understanding these complex issues is important.
5. Is the brokerage substantial enough to manage the needs?
Should one engage the services of a large brokerage or a smaller brokerage offering a more personal service and attention to detail? We think that a cross between the two best suits a body corporate. Bodies corporate are exposed to an array of risks ranging from liability claims, fraud and dishonesty, fire, floods, burst pipes and many more. When claims become tricky trustees want to know that they are with advisors who are experienced, have buying power and are respected by the insurer. Some large brokers offer a wide range of services but only have a small percentage of community scheme business. Many small brokers have no or very little experience in sectional title. A larger brokerage with an experienced team that offers a good service with a main focus on community scheme risk is certainly ideal.
6. Is the broker providing guidance and information?
Throughout the year, insurance risks and needs manifest itself. Information and changes should be readily available and communicated. Policy changes should be delivered to managing agents and trustees as quickly as possible. Changes in policy conditions, particularly those which prejudice owners should be highlighted without fail. Trustees should ask how policy changes are communicated, whether information is available on the company website and how claims queries are entertained.
7. What is the relationship between the managing agent and the broker?
It is important that the relationship between the broker or advisor and the managing agent is a good relationship and not just an arranged marriage. Trustees should be in a position to select their own broker but they should always seriously consider the negative impact of working with a broker whose systems and service levels are not in line with the managing agent’s processes and management systems.
8. Does the broker have the necessary safety nets in place?
Ask your broker whether they carry professional indemnity insurance t cover situations where an error or omission on the part of the broker is covered. Brokers or advisors are not obliged to have this cover in place but are obliged to disclose whether or not they have it.
9. Does the broker have an understanding of the fidelity needs of bodies corporate and are they able to cover the managing agent and the body corporate properly in respect of prescribed rule 29.(2)(b)?
Misappropriation of funds is a high risk factor and one of the most overlooked areas of risk. Trustees should hand their broker a copy of this rule and ask that they provide advice appropriate to the particular body corporate’s needs. Proposed new regulations (soon to be implemented) make this compulsory yet very few insurance brokers know about the impending changes.
10. Does the broker visit the property to fully understand the relevant risks and engage with a valuer when determining specific values, e.g. retaining walls and exclusive use area improvements?
While the insurance advisor is unlikely to have safety and loss control qualifications, an insurance advisor needs to have an above average understanding about the assets and environment they are advising on in terms of risk mitigation and risk transfer. We believe that each and every risk address should be visited and the information from a valuer’s site visit report should be carefully checked for items added or matters reported on which could affect the cover. Brokers should be provided with full valuation reports.
Author: Mike Addison
Contact Addsure – The Leaders in Sectional Title Insurance – to get fit and proper advice from advisors who understand Sectional Title. Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069