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What insurance advice can a body corporate expect?

In a previous article, we dealt with Furnishing Advice for Sectional Title Schemes. This blog will elaborate on the topic of giving advice and what bodies corporate can, and should, expect.

Sectional title insurance needs and requirements can be divided into 3 categories: Buildings cover, liability cover and fidelity cover. Further needs such as general liability cover, levy guarantee cover, excess buyback, etc. can be considered additionally but the first 3 categories are dealt with in that order in the sectional title scheme prescribed management rules.

In terms of FAIS legislation, a final advisor or broker is obliged to deal with their client in accordance with the General Code of Conduct for Authorised Financial Services Providers and Representatives. Published under Board Notice 80 in Government Gazette 25299 of 8 August 2003 and as amended. Paragraph pertaining to Record of Advice:

 (1)     A provider must, ……. maintain a record of the advice furnished to a client …, which record must reflect the basis on which the advice was given, and in particular-

(a)     a brief summary of the information and material on which the advice was based;

(b)     the financial products which were considered;

(c)     the financial product or products recommended with an explanation of why the product or products selected, is or are likely to satisfy the client’s identified needs and objectives; and

(2)     A provider, other than a direct marketer, must provide a client with a copy of the record contemplated in 9(1) in writing.

Usually, when trustees in sectional title schemes consider their insurance for the following year, it would be at a trustee meeting under an agenda point called “Insurance”. The trustees may be meeting alone or together with the managing agent. The insurance advisor is rarely present but those present are expected to make a decision. Unless the managing agent is an authorised financial services provider themselves, they cannot advise on product selection or even suggest which product to select as this would be highly irregular.

The only way for decisions to be made under advice from a suitably qualified advisor is to request written advice which can be circulated and easily understood with supporting documentation and tabled.

The managing agent cannot act as insurance agent, unless registered as a financial services provider but acts as transient agent. This means they can deliver the advice to the trustees or their meeting by presenting the broker’s written advice.

Considering all of the above, we can summarise the standard of written advice you can expect from an insurance advisor:

  1. It should briefly mention the prescribed needs (buildings, liability and fidelity) confirming that the advice has accounted for these. This would be the basis on which the advice was given per (1)(a) above.
  2. It should compare quotations with the full quotations separately provided so it reflects the products which were considered as per (1)(b) above.
  3. The actual advice should be there. We suggest that the advisor clearly states the advice in summary form to explain which product is recommended and why.

With this tabled, especially if circulated to the trustees ahead of the meeting, trustees are able to reach a decision simply and easily based on the advice provided.

The minutes of that meeting will refer to the letter of advice e.g. “The trustees resolve to renew the insurance cover with XYZ Insurance as advised in Addsure’s letter of advice dated 15 June 2016”.

A copy of the letter of advice should be attached to the minutes (or included with the minutes) and simultaneously, a copy of or extract from the minutes can be sent to the broker as confirmation.

With the new regulations pertaining to community schemes, particularly fidelity, the record of dispensed advice will be even more important. Insurance advisors will need to be familiar with regulations and trustees will need to ensure that such advice is received.


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 (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069