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Questions about community scheme insurance

Owners tend to leave sectional title insurance matters to the trustees but that should not stop them from asking questions. An owner’s property is often his main investment, therefore the matter of insuring it should be taken very seriously.

When last was a valuation done?

Owners should ask trustees when last valuations were undertaken.  I am often astounded to hear of complexes of 50 plus units where a valuation has not been undertaken for many years.

Under-insurance is a very important consideration but over-insurance could mean that the body corporate is paying unnecessary premiums. Not only should bodies corporate be seeing to this but also homeowner associations where common property is involved.

The correct answer is that the scheme’s buildings and all improvements to the common property was last valued within last three years and the sums insured escalated according to building inflation as provided by the valuer.

Who are our brokers or insurance advisors?

All owner should ensure that they have a specialist advisor in sectional title or community schemes, offering sound advice in respect of the the risks, legislation and product selection.

Who is the insurer and how were they selected?

The next question should be about how the insurer was selected. The broker should analyse the body corporate’s insurance every year on renewal of the policy, compares similar products to present cover and provides written advice in respect of the renewal. Owners should know exactly who the brokers are, which insurance company covers the scheme and they should have received all this information from their brokers in a dated letter of advise.

Do we have fidelity cover in terms of the rules and regulations?

Unfortunately, this question is hardly ever asked because most bodies corporate do not have this cover in place. The soon-to-be-introduced community scheme regulations will set minimum fidelity cover requirements for both HOAs and bodies corporate. Bodies corporate should be guided by these proposed requirements already and put this important cover in place as soon as possible.

How do we invest and protect our surplus funds?

Stemming from the questions on fidelity cover, one should ask how surplus funds are invested and how it is controlled. This money belongs to the owners therefore owners should not hesitate to ask how this money is being managed.

How are the geysers dealt with regarding insurance and what is the excess?

Geysers are usually the most problematic areas of claims and losses. Insurers offer geyser cover despite that in terms of prescribed rules, the maintenance of geysers is an owner’s responsibility. As such, trustees should negotiate excess of geysers in a manner best suited to the owners of the scheme collectively. In other words, where owners are neglecting to maintain geysers and a large number of claims are affecting premiums and insurability, trustees should seek to increase the excess on geysers, letting owners carry some of their own risk and reduce the burden on the claims ratio.

The way geysers are dealt with in a scheme should be communicated to all owners.

Where can one obtain more information about the insurance policy?

The managing agent should keep a copy of the latest policy schedule (note that this changes regularly, particularly in larger schemes) and the policy wording. Owners should request this when needed and owners should check their SRV (Schedule of Replacement Value) to ensure that the replacement value stipulated for their own unit stacks up in terms of replacement value. Owners who have renovated their sections will probably need to increase the sums insured of their sections over that set by the trustees.


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