One of the most important functions of a body corporate (and property owners association), viz a vie the trustees, is to ensure that the scheme is adequately insured.
So much so, that insurance is specifically referred to in the Sectional Title Schemes Management Act (STSMA), as well as the CSOS regulations and the prescribed management rules, the latter of which determines the extent of the role in more detail.
Sections 3(1) (h) (i) of the STSMA states as follows:
3. (1) A body corporate must perform the functions entrusted to it by or under this Act or the rules, and such functions include—
(h) to insure the building or buildings and keep it or them insured to the replacement value thereof against fire and such other risks as may be prescribed;
(i) to insure against such other risks as the owners may by special resolution determine;
The primary functions of the body corporate are carried out by the trustees, to this end the Act and registered rules prescribe that trustees must, inter alia:
ensure that the building(s) and equipment be valued, on, at least, a 3-yearly cycle;4
ensure that the policy be kept up to date;
ensure that the policy includes cover for specified perils;
ensure that the policy includes additional items, as may be required from time to time and/or agreed upon at an AGM;
ensure that the policy includes fidelity insurance, or that a separate policy is in place for same, and;
ensure that the policy includes public liability and trustee indemnity cover.
Policies are in place for a year at a time and renewed each year. Intersect has always played a crucial role in assisting trustees in this regard, by ensuring that, as best it can, the above is met. Moreover, Intersect assists the trustees, owners, brokers and insurers with regards to common property insurance claims that may arise from time to time.
In order to continue assisting trustees, and to ensure best practice is followed, that all boxes are ticked and that the processes are efficient, we reviewed, in its entirety, the role of insurance, where it pertains to our clients’ schemes. This includes both sectional title and, to a lesser, but equally important, degree, home owners and property owners associations.
Intersect administers many schemes, with a total replacement value in excess of R12bn, spread over several insurers, with several brokers appointed.
When reviewing the insurance role, our goals were as follows:
to ensure that all of our clients enjoy the economies of scale that our large portfolio represents;
to ensure that every policy not only covers the minimum requirements of the prevailing acts, but also covers perils that we have learned through decades of experience, should be included;
to ensure that the processes of both annual renewal, as well as daily claims facilitation, are streamlined and more efficient;
to ensure that processes are in place to ensure that our clients’ buildings and equipment are regularly valued.
To this end, we applied some out of the box thinking and approached major property insurers, with a view to achieving the above goals, in the most cost effective and efficient manner.
What we found, specifically with the COVID-19 outbreak and its effect on the global insurance industry, is that even some of the larger insurers have capacity issues and are experiencing re-insurance woes, hitherto not experienced.
After many weeks of negotiations with these insurers, we arrived at the following solution, that will not only achieve the above, but also allow us the additional buying and negotiating power to ensure that our clients’ future needs are looked after.
Our solution is summarized as follows:
We appoint a single insurer, to be reviewed on an annual basis;
We appoint a single broker, to be reviewed on an annual basis;
We adopt a single policy wording, that covers all required and additional perils;
We have the rates (which determine the premiums) priced on the gross sums insured, rather than on the individual sums;
We review and renew at single, specified, times of the year, i.e. January, for March renewals;
We engage with the appointed insurer to ensure cost effective, regular, valuation adjustments;
We process all insurance claims through a single broker and streamline the process both in terms of claims facilitation, as well as refunds and payments to and from our trust account;
We settle all premiums, on a monthly basis, thereby minimising risk of unpaid premiums and retaining funds in investment for the clients’ benefit, and facilitate this through an additional, separate, trust account, so as to ensure that our clients’ funds are correctly administered and accounted for, reduce related audit time and increase cash flows.