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Practical steps to deal with sectional title insurance

Now that we are getting used to the new rules and regulations, a few practical steps can be outlined to ensure that duties are performed properly.

Trustees will need to deal with insurance at least 3 times during the year:

  • Three months before the policy renews (the policy renews annually)  

At this stage the trustees should provide the insurance advisor with the following information and engage with the insurance advisor as to the following.

When the buildings were last valued and the percentage by which the insurer must increase cover. In other words, the future sum insured needs to be determined.

The amount of fidelity cover required – either the minimum cover required in terms of CSOS regulations or as decided at a general meeting of owners.

  1. Just before the date of policy renewal

About three weeks ahead of renewal, the insurance broker needs to provide written advice to the trustees as to which insurance product the trustees should choose for the forthcoming year. This letter of advice (LOA) is issued after careful analysis of the needs of the body corporate and comparative analysis of different products.

This decision should not be taken lightly, it should be properly recorded and a copy of the record of advice (LOA) filed together with the trustees’ resolution. The information received in paragraph 1 assists the broker in formulating his advice.

  1. Just before the AGM

Together with the notice of the AGM, an AGM pack gets sent to owners ahead of the AGM. According to the new prescribed rules, a few more insurance agenda items will require attention at the AGM going forward.

The Schedule of Replacement Values (SRV) is now presented and approved by owners with reference to the actual valuation which also needs to be made available at the AGM – according to the new rules. It is now compulsory that this valuation is undertaken – at least – every three years.

In between this cycle, the building inflation rate must be accounted for and the schedules escalated accordingly. This information must be properly recorded at the AGM.

The liability cover must also be confirmed. Prescribed rules require that a minimum sum of R10,000,000 liability cover be in place. The chairperson should advise of the present sum insured and ensure that the general meeting approve the present sum insured or instruct the trustees to increase cover, if appropriate.

The owners must agree to the required fidelity cover sum. The CSOS (Community Schemes Ombud Services) Act regulation sets out the minimum amount required but the owners still need to agree if it is sufficient and whether it should be increased.

Lastly, owners decide on whether additional cover is required, e.g. levy guarantee cover, vehicle cover or other cover not ordinarily required.

Essentially, the new rules and regulations have not changed much if trustees were already being prudent, the new rules just formalised the process by making good practice compulsory.

In summary, sensible planning is required. It is a good idea to diarise the three insurance tasks. Engage with a professional advisor who can guide you through these responsibilities and the insurance aspects will fall into place.


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 on (011) 704-3858; in Durban on (031) 459-1795 and in Cape Town on (021) 551-5069