The origin and importance of sectional title policy

The early types of insurance policy and the negative implications

Initially, sectional title insurance was underwritten on the same basis as the normal buildings combined insurance. This meant that a body corporate had to purchase additional cover to comply with prescribed rules, i.e. additional premiums needed to be paid for the additional sections purchased in the policy.

This made sectional title insurance rather expensive, and bodies corporate invariably omitted certain cover to save on insurance costs. There was no insurance conformity in the sectional title insurance industry, as most brokers did not understand the requirements in terms of prescribed rules or sectional title legislation.

The new sectional title insurance contract

Some years ago, the opportunity to solve this problem was taken by way of the introduction of a sectional title insurance policy by design. 

This new contract was based on the basic buildings combined policy, but with the addition of more cover extensions at no additional premium. The policy was designed to include all the sections as required by prescribed rules and offered in a single package, where the premium is calculated on the total sum insured and not according to the sections chosen.

Basic premiums were only increased where additional cover over and above the basic package was required.

The benefits of the sectional title policy

The new package policy ensured that bodies corporate had a contract of insurance, which served the sectional titles insurance industry and gave the trustees peace of mind in that they enjoyed insurance which, by default, largely met the requirements of prescribed rules.

An added benefit was that underwriters were able to (i) offer cover at a very competitive premium rate, (ii) at basic increased cover limits, and (iii) that policy wordings would be relative to the sectional title industry.

Sectional title insurance brokers or advisors

Despite these sectional title policies by design having been around for so many years, many bodies corporate still use the old buildings combined basis of insurance.

Sadly, this is due to both trustees and brokers not understanding the requirements of the prescribed rules. The implication is that much of the cover required in terms of sectional title prescribed rules is ignored, and the bodies corporate are not properly insured.

Trustees need to ensure that they make use of the services of an insurance adviser who is familiar with the requirements of the Sectional Titles Act and specifically the relevant rules about insurance.