As its title states, short term insurance policies are by the very nature of their description – short term. In financial terms, short term usually means within a year. Short term policies effectively expire after one year unless contractually, renewed. Buildings or community scheme policies are typically short-term policies.
Financial advisors, intermediaries or insurance brokers (the person providing the community scheme with advice) should provide the trustees with written advice on an annual basis, meeting certain criteria. More about this can be found in a previous recent blog on this website.
In summary, the standard of written advice one should expect from an insurance advisor is as follows:
– It should briefly mention the prescribed needs (buildings, liability and fidelity), confirming that the advice has accounted for these.
– It should compare quotations, with the full quotations separately provided in summary.
– The actual advice should be included. The advisor should clearly state the advice in summary form so as to explain which product should be selected and why.
In our view, trustees have a fiduciary duty to ensure that they are receiving this advice.
Good practice is for the trustees to deal with the insurance renewal a week or two ahead of policy renewal, preferably at a meeting of trustees. Tabled should be:
- A copy of the written advice from the broker, commonly known as a Letter of Advice (LOA).
- A copy of the actual comparative quotes and present insurers renewal invitation.
- A copy of the claims history – summary of claims for the past year at least, preferably the last three years claims history.
- A copy of the most recent valuation and Schedule of Replacement Values (SRV).
First prize is that the broker is in attendance but practically this is usually not the case. Therefore, high importance placed on the delivery of good quality written advice.
The trustees must ensure that a property valuation has been undertaken, at least within the last three years. The present sums insured should be in line with building inflation since the date of the last valuation. An updated SRV (Schedule of Replacement Values) should be prepared by the body corporate and the insurance policy schedule should reflect the same figures. (This SRV is later presented at the AGM).
Fidelity cover to the extent of the fidelity formula needs to be checked against the latest financial statements and budget.
The claims history should be understood by the trustees. This has an impact on renewal premium and advice should be centered around this aspect.
The actual Letter of Advice (LOA) should be properly considered and the trustees resolution duly noted.
The trustees should sign off the comparative quotes and LOA, and return this with any further instructions or requests to the financial advisor without delay.
The Sectional Title Insurance Guide is an excellent resource for trustees which assists them to understand their role better in respect of insurance.
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