Since the CSOS (Community Scheme Ombud Services) Act and regulations were brought into effect towards the end of 2016, the requirements for fidelity changed fairly dramatically. Simultaneously, new prescribed rules under the Sectional Titles Scheme Management Act came into effect which meant one needs to reference both sets of legislation when considering fidelity for a sectional title scheme.
Prior to this, it was still a requirement to consider fidelity cover at a sectional title AGM, but it was up to the members of a scheme to decide how much, if any fidelity cover was required. There was also no guidance in terms of minimum standards or coverage needed.
Some insurers, who specialise in community scheme insurance, have put together insurance products to meet the requirements set out in Regulation 15 but note that there are still products out there which DO NOT meet the requirements.
Our suggestion is that where the trustees are working with an insurance broker who is not necessarily well-versed in community scheme matters, that a copy of regulation 15 be provided to such broker to ensure that products provided meet the need.
It is a basic requirement under the FAIS Act General Code of Conduct for Authorised Financial Services Providers (FSP) and representatives that the broker must provide a copy of the record of advice reflecting a brief summary of the information and material on which the advice was based.
There can be no ambiguity if this route is followed. Remember that this is an important area to cover properly. The broker is responsible for dispensing advice and the trustees have a fiduciary responsibility to meet the requirements as set out by the rules and regulations. Where a managing agent contracts to arrange the insurance and prepare for AGMs, the managing agent will also be culpable if things go wrong.
What do you need to look for in a fidelity insurance product?
- Insurance against the loss of money belonging to the scheme, as well as money for which it is responsible sustained as a result of any act of fraud and dishonesty committed by a person defined as an “insurable person”.
- It is important to make sure that the policy covers the scheme against such acts by scheme executives, employees or agents who have control over the money, managing agents, contractors, employees or other person acting on behalf of or under the direction of a managing agent
- The minimum amount of cover per the formula set out in sub regulation 3.
- The policy must provide for payment of a loss by the insurer to the community scheme within a reasonable period after reasonably satisfactory proof of the loss has been furnished to the insurer. It must not require that criminal or civil proceedings be taken or completed against the insured person before payment is made under the insurance policy.
The previous traditional fidelity cover severely falls short of these four points and the reality is that many schemes are still being insured by way of the traditional fidelity wording.
Take a good look at your policy wordings and make sure that these requirements are being met. Check these points with your broker.
Addsure is South Africa’s leading sectional title insurance brokerage. Obtain fit and proper advice from advisors who understand sectional title. Contact our head office, Cape Town (021) 551 5069 who will put you directly in touch with one of our nationwide advisors.