By: Gina Houston-Brown :-
As an executive appointed by majority in a Sectional Title or Community Scheme, it is your duty to obtain sufficient information and advice on any due matters in order to make informed decisions on behalf of the scheme. One of these matters to be considered is the Insurance Policy Renewal. Let us take a look at the pertinent points for consideration:
1. Meeting:
It is advisable that at least 2 weeks before renewal, a meeting is called with your broker to re-view the insurance.
2. Building Valuation
It is now written into the Sectional Title & Community Schemes Act that all such buildings must be formally valuated every 3 years. Both the valuation, as well as officially recognised building inflation rates should be part of the consideration in coming to a replacement value.
3. Fidelity Cover
This cover indemnifies you against fraud by third parties in your employ such as your Managing Agents, as well as theft by Trustees. The sum insured should be in line with the official Fidelity formula for calculation as stipulated in the Act and needs to be: (a) a minimum of the schemes reserves at the end of its last financial year, and (b) 25% of the schemes operational budget for its current financial year.
4. Public Liability
There should be a minimum of R10 million, but it is not uncommon and in fact recommended to have at least R50 million.
5. Claims Ratio & History
Current premiums should be fair and sustainable, and a very general guide is that a fair premium would be in line with an average claims ratio of 35% - 50% of premium.
6. Replacement Values
Whilst the Community Scheme Ombud Services (CSOS) Act and the Sectional Title Schemes Management (STSM) Act prescribe certain rules for minimum cover in some areas, it is the responsibility of the Trustees/Directors at a general meeting to decide if more cover is required. It is also important to ensure that the policy wording of the cover you select meets the requirements of latest legislation and not just traditional policy wordings.
Trustees should use the services of an Independent Insurance Advisor who has a good understanding of the Sectional Title insurance requirements for which Trustees are ultimately responsible. Trustees can be held legally liable in their personal capacity for errors, omissions and negligence in their duties.