TIP 1: REPLACEMENT VALUE
I always advise new trustees or newly appointed managing agents to obtain the present sum insured from the policy and find out how and when this was determined.
If the building has not been valued by a certified professional valuer or Quantity Surveyor for more than three years, unless the building is a very small one (say 2 or 3 units), make it a priority to have the buildings valued. In terms of sectional title legislation, the trustees are obliged to insure to FULL REPLACEMENT VALUE.
TIP 2: CHECK THE BUILDINGS POLICY
Ask for a copy of the policy wordings as well as a copy of the policy schedule.
- Check the address stipulated as the “risk address”. Correct?
- Is the sum insured as you have been advised?
- Is the policy a specific sectional title policy? (It should state so.)
- Does the policy provide for burst pipes and burst geysers?
- How do the excesses (first amounts payable) stack up? Make sure that they are reasonable and that percentage-based excesses are capped to R20 000.
- Are there liability (Public Liability/Property owners Liability) sections and if so, is there at least R10 million worth of cover?
- Has trustee indemnity cover been included? This is either a separate section or an extension of liability cover.
- How much fidelity cover is provided? Note that most policies only include very limited fidelity cover and does not cover dishonesty on the part of the managing agent as required by ‘Prescribed Management Rules’.
Read your management sub-rule specific to fidelity cover (Prescribed rule 29.2(b) refers).
TIP 3: CHECK FIDELITY COVER REQUIREMENTS
Check if there has been a body corporate decision on the amount of fidelity cover required, if any. This is the most over-looked insurance aspect and something that should be dealt with immediately.
Trustees are required to ensure that the owners (at a general meeting) make a decision on the amount of fidelity cover required.
If there is a lack of full fidelity cover, i.e. covering dishonesty on the managing agent’s part as well, extend the cover or purchase a separate fidelity policy. R1 million worth of cover can be achieved for less than R250 per month.
TIP 4: LEVEL OF ADVICE
Making sure that the body corporate’s policies suits their needs, are fairly priced and provides sufficient cover needs the input of a financial advisor / broker. When it comes to sectional tile, ensure that the financial advisor is knowledgeable on sectional tile.
Upon renewal of the policy, insist that the financial advisor provide written advice in respect of the product they are recommending. Insurance policies renew annually and as such require professional input by way of advice at that stage. The trustees are required to make decisions on insurance matters, usually without the broker present. Decisions about insurance made at trustee meetings should be based on written advice from the insurance advisor.
As a newly appointed trustee, you need to ascertain whether written advice was provided at the last renewal date.
TIP 5: EXCESS ARRANGEMENTS
Take a look at the body corporate’s rules in respect of excess, i.e. who pays the excess under which circumstances. Prescribed management rule 29.4 was introduced at the end of 2008 which requires that owners pay any excess for damage to their sections unless otherwise specified by special resolution, requiring the body corporate to pay for the damage. We suggest that a special resolution is put in place to make the body corporate responsible for excesses where damage was caused from outside forces. Make sure that brokers and insurers structure excesses in a way that accommodates this rule. Excesses “per unit per claim” are not advisable. Make sure your policy reflects excesses “per event” so that apportionment of excesses in multiple claim scenarios does not become over-complicated.
TIP 6: REQUEST CLAIMS HISTORY
Obtaining a claims history report from the insurer will reveal the true history. Are the trustees aware of each and every claim submitted? Check the trend and ratios, and have the insurance advisor provide thorough explanations on the claims history.
TIP 7: CHECK GEYSER INSURANCE VS NEEDS
In terms of prescribed management rules, owners are supposed to maintain their own hot water installations, yet most sectional title policies provide cover for geyser maintenance to some degree, as well as “wear and tear” related geyser replacement. This is good to have but can very easily get out of hand. Presently, geysers and related resultant damage account for some 70% of all claims, which tells us that this is an area that may need management intervention.
Trustees can request insurers to adjust geyser excess upwards or downwards and have the premiums adjusted accordingly. In other words, trustees can opt for a slightly higher premium for lower or no geyser excess to smooth out excess burden where owners are mostly pensioners or fixed income earners. Another way to mitigate regular geyser claims is to improve geyser maintenance and/or implement a programme that recommends products with a 10 year guarantee, no anode replacement products, etc.
The geyser claims history and needs of the owners must be considered.
TIP 8: INFORM OWNERS / COMMUNICATE TO MITIGATE
Communication and information always helps. We suggest that the body corporate implement a claims procedure so that owners know what to do in the case of an insured event, like a flood, burst pipe or bust geyser. This can be in the form of a one page document with step by step procedures, stating who to call under which circumstances. Some of the sectional title insurers have 24-hour call centres for emergencies, especially for times when things go wrong after hours.
TIP 9: TAKE ALL REASONABLE PRECAUTIONS AROUND COMMON PROPERTY
It is advisable to consult with a safety expert to audit the common property for fire and safety requirements. Such a person can check that your fire precautions are up to standard and that safety standards in respect of national building regulations are met, e.g. handrails are where they should be, braai area chimneys are up to standard, swimming pools properly enclosed, etc. If possible, arrange for the local fire department to visit the premises and advise.
Make sure that risks pertaining to “slip and fall” are reduced by keeping paving free of loose tiles, that lighting is adequate and globes are replaced when necessary. Maintenance and good housekeeping is key.
TIP 10: HAVE ALL OWNERS CONCUR WITH SUM INSURED
Make sure that all owners have a copy of the latest schedule of replacement values and that the owner’s acceptance of the schedule of replacement values are properly minuted at the Annual General Meeting. Owners should be advised of their rights to increase the amount of insurance for their units where substantial improvements have been made.
These are a few basic tips to help trustees on their way. A copy of the SECTIONAL TITLE INSURANCE GUIDE can be downloaded from the Library Section in Paddocks Club or from www.addsure.co.za.
Mike Addison is the director of Addsure – www.addsure.co.za – specialist sectional title insurance brokers.
Article reference: Volume 9, Issue 4, Page 2