The importance of accurate insurance values and limits

By now, most managing agents and bodies corporate are aware that the new community scheme regulations have set minimum requirements for various types of insurance regarding the assets and finances of the community scheme.

It is important to remember that even though the correct insurance with the appropriate limits of indemnity may be in place, the value of assets and finances changes constantly. This change in value need to be closely followed by a related change in the limits of indemnity on the insurance policy.

The new regulations require a professional valuation of all community scheme properties at least once every three years. Has your property been valued within the last three years? If so, the insured values on your insurance policy should have been adjusted accordingly. If this did not happen, you may be under-insured which may be disastrous in the event of a significant claim. If a valuation has been done in the last three years, make sure that your insured values are following the stipulations and recommendations of the valuation report.

Property values

The new regulations now compel all community schemes to have adequate fidelity guarantee insurance. Many community schemes have readily complied by now.

Where community schemes have transitioned from one financial year into the next following the inception of these fidelity policies, the property values will need to be updated. It may lead to higher levies and adjustments to the required reserve amounts. The fidelity policy sum insured will probably have to be reviewed as it may no longer be compliant with the regulations. As such, sums insured must also be adjusted to ensure compliance.

In some cases, trustees have deliberately escalated their initial insured values to accommodate potential increases but since these are usually only about 10% it may not be sufficient.

Managing agents and trustees must ensure that sums insured on all policies are constantly monitored and adjusted in accordance with the current figures to keep the body corporate adequate covered and compliant. If this is not closely managed, the body corporate run the risk of significant shortfalls at claim stage and the inevitable application of average.

 

Author:  Bruce Gibson, Addsure

Contact Addsure – The Leaders in Sectional Title Insurance – for 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