Beware of over insuring after a valuation

We see the following common error occurring following trustees when trustees communicate the report of a professional valuer to the managing agent or brokers – and it is all about how the figures are presented:

Let’s take the following example to illustrate the point:

Buildings and improvements to common property

R400,000,000

Contingencies provision

R20,000,000

Sub Total

R420,000,000

Escalation 10% (assumes destruction on last day of policy)

R42,000,000

 

R462,000,000

Professional fees

R46,200,000

 

R508,200,000

Escalation during planning

R15,000,000

Escalation during construction

R15,000,000

Grand Total

R538,200,000

 

Sometimes the managing agent will simply advise the broker to insure for R538,200,000.

The broker instructs the insurer to go on cover for the R538,200,000 plus escalation and inflation.

In this instance, the incorrect figure of R508,200,000 plus escalations was provided.

The correct way of insuring from these figures would be:

Sum Insured

Sub Total + Professional Fees

R466,200,000

Escalation (period of Insurance)

 

R42,000,000

Escalation

(period of construction and redesign)

 

R30,000,000

 

If one was insured for R538 200 000 but the correct figure is actually R466 200 000, the body corporate is paying premium on the extra R72 000 000. On a low rate of .050%, the body corporate will be paying an unnecessary R36 000 in premium per annum. This is because little or no premium is actually paid for escalations, even if declared on the policy schedule.

Therefore, it is critical to work with valuers and insurance advisors who understand sectional title insurance, the valuation process and how to correctly structure the SRV (Schedule of Replacement Value). The same figures, correctly structured can make a substantial difference.

 

Author:  Mike Addison, Addsure

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