The appointed intermediary (insurance broker) must be officially appointed by the insured (the scheme). The insurance intermediary is defined in the Financial Advisory and Intermediary Services (FAIS) Act and is required to provide services in line with the general code of conduct published under the FAIS Act.
It is generally accepted that the insurance broker is appointed by way of a letter of appointment, signed by the insured. This ensures that the insurer can legally recognise the newly appointed advisor, and therefore, the letter must be appropriately signed.
In the case of a sectional title scheme, the letter should be signed according to prescribed management rule 10 (PMR 10), which means it should be signed by:
- Two trustees, or
- One trustee and the managing agent, supported by a trustee resolution (on file with the insured).
For other schemes, such as a homeowner’s association, it is recommended that the letter of appointment be signed by a chairperson or director, preferably supported by a resolution. Alternatively, it should be signed by another appropriate person authorised by a resolution of directors.
What should the document contain?
- Understanding the consequences
The document should confirm that the parties representing the body corporate understand that appointing a new broker is a serious matter. The new insurance advisor must familiarise themselves with the scheme’s risks, past and current claims, the current policy, any outstanding insurance survey issues, warranties, and any possible pending liability issues. The new broker should be informed of any underlying risks known to the previous broker. The trustees need to understand that the new advisor can only be held responsible for future advice and that the advice process is core to the broker-client relationship. The appointment is more than just changing a name on a policy schedule.
- Formal introduction
The appointment should confirm that the trustees or directors have been formally introduced to the broker and have received a statutory letter of introduction. This ensures that clients are aware of the broker’s qualifications and abilities and that they are fit and proper to accept the appointment.
- Disclosure of pending liability claims
To protect all parties—owners in the scheme, trustees or directors, the managing agent, and the broker—the insured must confirm there is no awareness of any pending liability claims. Any previous incidents that could result in a liability claim must be fully disclosed to guide the scheme accordingly. Different liability policy wordings can affect coverage, and when policies change, retrospective liability cover could fall away if the policy is changed before the liability prescribes.
- Compliance with the Property Practitioner’s Act
The Property Practitioner’s Act, particularly Section 58.(1)(b), states that managing agents should not make it obligatory for their clients to use a specific supplier for services, including brokers. It is important to confirm that this was not the case in this appointment. Managing agents cannot strong-arm client scheme trustees to work with any particular supplier. Trustees must make an independent and objective decision regarding the appointment of the scheme’s insurance broker.
- Effective date of appointment
The effective date of the appointment should be noted. This could be immediate or from a certain date, but given the important implications, it needs a clear start date.
Conclusion
The appointment of the insurance intermediary is much more than simply signing a form and changing a name. The trustees are appointing a care intermediary who will be the legally appointed insurance advisor and provider of intermediary services going forward. This person and their team will provide guidance for much of the scheme’s building risks and financial well-being. Therefore, the appointment should be made with due care and diligence.
Author: Mike Addison
Addsure is a leading sectional title insurance broker. Get fit and proper advice from advisors who understand sectional title.