The 1-2-3 Approach

(Updated 23 January 2025)

Since the early 2000’s, Addsure has been coaching interested owners, trustees and managing agents in the basic requirements and steps to follow in respect of sectional title insurance. We have used various analogies over the years, with the objective of presenting the concepts in a simple and easy to understand manner. the “1-2-3-approach” concept is one of these catch phrases which we “started”, and which is now used by many other sectional title specialists, insurers and educators when explaining the basics of sectional title insurance.

Why “1-2-3”?

We brought in this concept when we realised that many role-players concentrated on building insurance, with fidelity and liability often being overlooked. Prescribed management rules at the time (pre-2016) required that fidelity and liability be considered, so we started emphasising the need to consider buildings as well as liability and fidelity as being equally important. There are more aspects to consider, however these three, we felt, needed to be looked at as the three main areas of coverage required. The more recent legislation (The Sectional Title Schemes Management Act 8 of 2011(STSMA) and The Community Schemes Ombud Services Act 9 of 2011 (CSOSA)) with their respective rules and regulations) which came into effect end of 2016, placed more emphasis on liability and fidelity, particularly fidelity.

Thus, our 1-2-3 approach was vindicated. Let’s briefly unpack all three:

1. Buildings

Insuring the buildings is a function of the body corporate, as set out in Section 3.(1) of the STSMA, Regulation 3 and Prescribed Management Rule 23.

In a nutshell, the body corporate must insure the buildings against fire and other prescribed risks to replacement value, which value needs to be determined by a valuation, which needs to be undertaken at least every three years. There is of course much more to this, however, in this article we merely unpack the 1-2-3 approach for now!

2. Liability

Public liability, in simple terms, is insurance that protects the body corporate against claims made against the scheme (where someone wants to hold the body corporate liable) following a person’s injury or their property is damaged while on the common property. It only applies if the body corporate is found to be at fault (negligent), like not maintaining the property properly. At the time of this article being updated, prescribed management rules recommend a minimum of R10,000 (ten million rand) of cover. We further suggest that this be extended to also include trustees’ indemnity. This would in essence, include financial or economic losses (non-injury or non-damage) flowing form errors or omissions made by the trustees. This cover is critical and dealing with claims correctly, also essential.

3. Fidelity

When the CSOS Act and the new STSM Act came into effect, it brought with it compulsory Fidelity cover with a few minimum requirements. Prior to this, it was only a requirement that this be considered at an AGM and as so few schemes purchased this cover, it was expensive to purcahse. By this now being compulsory for all, premiums are now a fraction of the cost.

Fidelity, or commercial crime cover as it is also known, simply put in the context of community schemes, is cover purchased by the scheme, the amount of cover subject to a certain formula, to protect the community scheme against losses occurring arising from fraud or dishonesty by an insurable person being for example, trustees/scheme executives, employees or the managing agent of the scheme.

Other risks

Another, fourth item being “Other” could be considered for some schemes. For example, a scheme may have a gym and own gym equipment, require additional liability, a golf estate and own golf carts and so on.

Our booklet, The Sectional Title Insurance Guide, a copy of which can be downloaded below refers to this (Insurance 1-2-3). It is this very booklet where we have brought the pieces of legislation pertaining to sectional title insurance into one, easy to understand, booklet, with this approach in mind.

Takeaway: Be mindful that all three areas are equally important. Take each of these seriously and check thoroughly on annual policy renewal at the very least!