In the process of reviewing insurance, trustees often engage with a number of brokers in order to obtain the best quote. While this approach may seem prudent, it is not the best way to deal with sectional title insurance.
What your broker should do
We were recently approached by the trustees of a scheme who found themselves in a quandary. They had obtained two quotes from two different brokers who were each selling the trustees a different solution and they didn’t know how to decide on the best option.
Since the introduction of the Financial Advisory and Intermediary Services (FAIS) Act almost two decades ago, insurance brokers should be advising, not just pushing a product. The client’s unique risk profile must be considered carefully before the appropriate financial products can be tabled.
Sectional title insurance is about insuring the body corporate – a collective of property owners – and not just insuring buildings. Trustees have a fiduciary duty to ensure that both the buildings and the owners are properly insured. The owners and trustees need protection in respect of liability pertaining to the common property, as well as protection against dishonesty on the part of trustees and managing agents. A broker who advises on sectional title, should be well-versed in the legislative requirements and should take the client’s particular areas of risk and concerns into consideration.
Finding the best broker for your scheme
Firstly, choose broker who specialises in sectional title insurance.
In order to find a good broker, you will need to do a bit of homework. NAMA (National Association of Managing Agents), key managing agents, sectional title experts and insurers themselves can refer a good broker or advisor.
If you find yourself with more than one good option, select two or three and interview them. Request a one pager from them on how they can best advise your body corporate, their strong points and how they would service the scheme in respect of further advice, mitigation, administration and claims handling.
During the interview, ask some basic questions to test their sectional title abilities, such as:
- How will you, as broker, present quotations and records of advice?
- What are the main areas of risk do you as broker consider important?
- Which insurers or underwriting managers does your practice work with?
- What team to you have to support you?
- How will claims be handled?
- Will the broker assist with analysing the valuation and assist with the preparation of a Schedule of Replacement Values?
- During power outages or lockdown, are you equipped to be fully operational?
- Give us (the trustees) some ideas you have to mitigate against losses?
- What differentiates you from other brokers?
- How long has your practice been servicing community schemes, and how many schemes do you have on your books?
- Do you share commission or any income you derive from broking with the managing agent?
- Do you have PI (Professional Indemnity) cover?
- On annual policy renewal, do the trustees receive a copy of the broker’s record of advice (preferably a letter of advice) with comparative quotes?
Next steps after you have chosen your broker
Once you have selected a broker, provide them with as much information as possible. They should receive a copy of the sectional plan, latest valuation report, and Management and Conduct rules (where EUAs have been so created) from you.
Advise the broker of any additional risks, e.g., commercial sections, woodworking, storage of flammable materials, whether there are extensions and section conversions, or any illegal structures.
The newly appointed broker will then be able to properly analyse the needs and risks, and provide more meaningful advice.
The new broker should next present the trustees with quotations under cover of a Letter of Advice (LOA). When the trustees consider the advice and resolve to follow the brokers recommendation, the written advice can be attached to the minutes so trustees are protected. This is useful when, at a later stage, a problematic claim results in owners questioning the insurance and you need to refer back to the original insurance advice.
In summary, the FAIS legislation requires that advice is dealt in a certain way. An excerpt from the General Code of Conduct for Authorised Financial Services Providers and Representatives as follows:
- A provider must, ……. maintain a record of the advice furnished to a client …, which record must reflect the basis on which the advice was given, and in particular- (a) a brief summary of the information and material on which the advice was based; (b) the financial products which were considered; (c) the financial product or products recommended with an explanation of why the product or products selected, is or are likely to satisfy the client’s identified needs and objectives; and
- (2) A provider, other than a direct marketer, must provide a client with a copy of the record contemplated in 9(1) in writing
Bodies corporate are better served when the trustees appoint a specialist in the field, especially with regard to the important responsibility of insurance.
Author: Mike Addison, Addsure
Contact Addsure – The Leaders in Sectional Title Insurance – to get fit and proper advice from advisors who understand Sectional Title. www.addsure.co.za