Insurance advisors have reason to be concerned about the proposed new community scheme regulations. In this blog, we explore the reasons for this concern.
Insurance advisors, brokers and financial advisors need to comply with the FAIS (Financial advisory and Intermediary Services) Act and regulations which includes the Code of Conduct for Authorised Financial Services Providers and Representatives. The importance of written or other recorded advice cannot be over emphasised as often, the financial advisor is not in direct contact with the client, i.e. the trustee.
In a previous blog article about furnishing advice, we explain this aspect in more detail.
Under current (or old) sectional title legislation, trustees are responsible to see to it that:
- Buildings are insured to full replacement value according to trustee determination
- Liability cover is in place for a minimum of R100 000
- A general meeting to decide on how much, if any, fidelity cover required including cover against dishonesty of managing agents.
Under points one two and three above, one can safely assume that as long as the advisor or broker has provided fit and proper advice, and provided a record of such advice annually to the body corporate based on information supplied by trustees or the managing agent to the advisor, the advisor has done their job.
All three areas will now undergo big adjustments. When the new CSOS Act (Community Scheme Ombud Services Act), the STSM Act (Sectional Title Scheme Management Act) regulations and appended prescribed rules become effective, brokers will need to ensure that their advice meets the more specific needs as legislated.
- Trustees will be obliged to have buildings valued at least every three years by a valuer. As such, insurance advisors will need to base their advice in respect of the buildings on this requirement, i.e. understand and advise the trustees with the valuation in hand.
- The minimum liability cover is increased to R10 000 000 and as such insurance advisors will need to tread carefully, especially when switching products from those with liability policy wordings on a claims made basis to liability policy wordings on an occurrence basis. Read our blog on occurrence vs. claims made liability wordings for more information.
- Minimum fidelity cover is to be set for ALL COMMUNITY SCHEMES, being the total amount in reserves as at last financial year end plus 25% of the following year’s operational budget. A general meeting will decide whether more cover is required. A broker or advisor will now need to enquire as to the minimum amount of cover required by their client and arrange or advise accordingly. We are concerned that this means that advisors or brokers can now become blameworthy where losses occur and where advice in respect of fidelity cover has been lacking or not recorded on the part the advisor or broker.
Many managing agents and financial advisors seem unaware of the implications which are far reaching. Many are slowly waking up to these soon-to-be-implemented requirements and have already started meeting those needs.
Where trustees are concerned, they are now better guided and have more clarity on these responsibilities. For the insurance advisors, the bodies corporate’s needs are prescribed by way of legislation so there can be no excuse for not providing advice or meeting needs in respect of these requirements.
Author: Mike Addison, Addsure
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