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Insuring solar equipment installations: A Q&A with Pearl Scheltema

Mike Addison from Addsure was recently interviewed by Pearl Scheltema of Fitzanne Estates in their Property Exchange podcast, a well-known podcast platform where Pearl engages with various industry role-players in the community scheme space. In this episode, Pearl and Mike have a discussion with a view to informing trustees of the possible effect solar panel installations has on the insurance policy of a sectional title scheme.  Mike unpacks a few of the points discussed in this blog post.

As a result of the ongoing problems with load shedding, many sectional owners are looking into alternative and renewable energy options, such as solar panels, to reduce the impact of load shedding on their homes. A common question raised by sectional owners is whether they are permitted to install solar panels on their sectional property. This can be achieved but a few important steps need to be followed.

Taking this one step further, one then needs to determine the responsibilities of the owner vs the body corporate when it comes to the insurance policy of the sectional title scheme and how the installation of solar panels affect the insurance policy.

Question 1: What does a standard insurance policy for bodies corporate include?

These days, a standard body corporate policy will cover the owners of the scheme from various prescribed insured events under three main areas: buildings, liability, and fidelity cover.  The buildings cover will include events such as fire, storm, flooding, impact, etc. It is this area of coverage to which we will look when considering solar and insurance. Usually, one can simply add solar for these covered events or one can specify the solar installation to include wider coverage against theft and power surge – the latter being very limited.

Question 2: Scenario: Roof is leaking, ceilings get damaged as a result thereof – does insurance cover?

According to most policy wordings, if the cause is wear and tear related, such damages shall be excluded. Up until recently, community scheme insurers took a softer view and accepted such damages, provided that they were sudden and unforeseen damages. This is still followed by some but stricter application is now the new normal.

Trustees do need to ensure that regular inspections and maintenance is undertaken on the roofs of schemes.

Question 3: The current buzzword is SOLAR: Please share your experience on what should be covered and who should be responsible for payment of the premium.

This is certainly the case and at Addsure, we have June 2023 our Solar Installation Month with a view to sharing themed information via our articles, Addsure YouTube channel and other social media channels.

What needs to be covered and who should pay depends on a few questions that must be answered first. We also need to determine how the coverage should be structured, depending on needs and appropriate insurance products. So, to be practical about what, who and how, lets focus on typical scenarios:

Where the body corporate requires solar to support off-the-grid or backup lighting, gate power, security, etc. for common areas, this would require simply adding the equipment to the policy – including or excluding theft – with the body corporate bearing the cost of premium. We mention this important area as keeping the common areas safe and well-lit is very important. It also impacts on space availability for PV panels.

Then one looks at solar PV systems (the norm with inverters and batteries) for security of supply and sensibly, hot water thermal or PV driven installations. It makes good sense to attend to both in most cases. Water heating is a huge factor, often being as much as 40% or more of a household’s electricity usage. Solar water heating installations would be dealt under PMR 31 and insured accordingly, depending on the various insurance products.

The solar systems, largely for security of supply,normally comprise a few PV panels on the roof, coupled by way of electrical connection to a controller and inverter, and linked to battery storage.

How we arrange the insurance will depend on a few factors: Assuming that the PV installation is a permanent fixture to the roof (on common property) and the controller/inverter and batteries, etc. are installed as permanent fixtures inside the section, the first (risk) factor to consider is risk of theft. Up until recently, we have been insuring most for normal perils but more recently, cover against theft is requested more often. The various insurers we work with are dealing with this in different ways – for example: some offer the additional cover, including theft for a certain premium, whereas others still require the cover to be on a specified all risks basis to ensure cover against theft.

As brokers and financial advisors, we do not decide on who pays for what; that would be for the body corporate to decide in terms of its rules and within the ambit of current legislation. How the system is being treated will determine how we set out the schedule of replacement values (SRV).  Typically, the PV panels will be on common property and the inverter, batteries etc, inside the section. We would normally reflect the inside portion as an additional sum and the external portion as EUA common property or de facto EUA for recovery purposes.

Question 4: Will the insurer need a specification of make, size, etc. re installation?

Yes, they will and as the insurers learn more about solar themselves, they may require further information such as watts, types of batteries, etc. We normally provide the insurer with a quotation or invoice which sets out all the necessary information.

Question 5: Please tell us about insurer’s specification for installation of gas or solar geysers. Surely, the replacement value is much higher for solar geysers than normal geysers? Will the excess payment on claims be more?

The insurers we work with do not (as far as we are aware), set out any minimum specifications. They do have certain requirements, such as an electrical certificate of compliance. Some insurers seek copies of lease or rental agreements where the insured solar items are rented by suppliers.

In all instances, installations must be complaint, approved by local authorities where required and in line with national building regulation requirements. Installed systems must be legal and certainly have been approved by the body corporate.

Excess payments could be higher but each risk is looked at on its merits and the claims ratio of the scheme.

Question 6: How does the claims history of a body corporate influence the annual renewal and premium of insurance?

It has a major influence, and we go to great pains to explain this to portfolio managers and trustee clients.

The claims ratio needs to be understood, which is simply the ratio of claims to premium over a given period. A 30% claims ratio means that for every R100 paid in premium, the insurer pays out R30 on average. The insurer’s break-even point is 55-60%; the 40% premium being the policy costs.

In other words, 60% of the premium is used to pay claims. In a nutshell, if claims ratio of a scheme is consistently 35-55%, the premium is correct. If the claims ratio is 100% over a period three years, it effectively means that the insurer needs to double the premium to reduce the ratio to 50%. See orange explainer button below for more detail.

Question 7: What would be a good starting point when it comes to solar and other alternate sources of energy?

Without any doubt, having a real expert in the solar industry talk to you is your very first step. There are many people who claim to be solar experts but getting accurate and professional advice is paramount. Once the needs and recommendations are at hand, obtain the correct legal advice in respect of legal structure, rules, EUA, etc. and move forward, taking a holistic approach. The insurance part is the easy part; however, a sectional title insurance specialist will help you structure the insurance correctly.

Author: Mike Addison

Addsure is South Africa’s leading sectional title insurance brokerage. Obtain fit and proper advice from advisors who understand sectional title. Contact our head office, Cape Town (021) 551 5069 who will put you directly in touch with one of our nationwide advisors.