Sectional Title Insurance policies typically renew annually. This means that once a year, an insurance advisor or broker needs to provide proper advice about the product for the ensuing year.
The contracting parties are the insurer and the insured; the insured being the body corporate represented by the trustees. Very often the managing agent is then representing the trustees of the body corporate and the broker / insurance advisor engages with the managing agent rather than the body corporate.
This is where things can get a bit ‘muddy’.
The trustees should never be put in a position where they simply have to accept the policy just renewing. Managing Agents / Portfolio Managers should never be placed in a position where they are forced to choose or advise their trustee clients. BUT this is what happens all too often.
It is shocking how little attention is given to this very important area of responsibility. Yes, five minutes at a trustees meeting seems to be the norm for a decision that involved millions of rands of risk, yet an hour will be spent on discussing a dispute about problematic pets.
Trustees have a fiduciary responsibility but can’t be expected to know everything about insurance. Managing Agents are not normally licensed financial advisers and thus are breaking the law if they advise their clients (the trustees) and taking huge risks by recommending any financial product. The financial advisor MUST advise his or her client properly. In these circumstances there are only two ways in which this can be done:
1) The broker or advisor must attend the trustee meeting and provide clear and concise advice about the products offered and why he/she is recommending a particular product.
2) Alternatively, the broker needs to provide a detailed letter of advice (record of advice) which sets out the present policy information, compares it to alternatives and recommends one for the trustees to select for the ensuing year. Such a letter should include last year’s premium and rate compared to the following year’s proposed premium and rate; the reason for any variance in rate; changes in excess structures; and claims history or claims ratio. The trustees are responsible to insure three main areas in terms of the rules 29.1 and 29.2 of the Sectional Title Act, i.e. the buildings, liability cover and Fidelity Cover. All of these need to be included under such a letter of advice.
Six weeks ahead of policy renewal, the insurance advisor should be preparing this letter and at least two weeks ahead of renewal, the trustees should receive their “letter of advice” in order for the trustees to have enough time to make their decision on either renewing the policy or changing brokers.
The letter of advice ultimately saves the trustees lots of time. If the letter is comprehensive and has considered the needs of the body corporate, the advice can very simply be followed by the trustees with little discussion needed.
Contact Addsure – the leaders in Sectional Title Insurance – to get advice on the most comprehensive insurance cover for your peace of mind. Contact mike@addsure.co.za or phone 021 551-5069.
Article written by Mike Addison.