What Bodies Corporate Must Know – property Insurance and sectional title
The property insurance landscape for sectional title schemes in South Africa is changing rapidly due to an increase in claims and global risks, including severe weather patterns and civil unrest. These shifts are directly impacting bodies corporate, trustees, owners, and property managing agents. Adapting to these new conditions is crucial for avoiding steep insurance costs and financial vulnerabilities.
Key Insurance Changes Impacting Sectional Title Schemes in South Africa
- Premium Increases for Sectional Title property Insurance in South Africa
- The recent surge in claims from extreme weather events such as storms, floods, and fires, as well as power-related issues, has caused insurance premiums for sectional title schemes to skyrocket. What used to be a manageable premium rate of 0.05% of the insured value has surged to as much as 0.15%. It’s essential for bodies corporate to adjust their insurance budgets accordingly to maintain sufficient cover.
- Higher Excess Amounts on Insurance Claims for Sectional Titles
- Alongside rising premiums, insurance companies are also increasing the excess amounts payable on claims. Importantly, South African sectional title owners must understand that they, not the body corporate, are responsible for covering the excess on individual claims. This could lead to unexpected out-of-pocket expenses for owners when repairs are needed.
- Risk of Insurance Cancellations for Poorly Maintained Sectional Schemes
- Poor maintenance practices can lead to property insurance policy cancellations. In South Africa, insurers are closely scrutinising sectional title schemes for upkeep and maintenance, particularly for roofs and waterproofing. Without proper documentation of regular maintenance, schemes could lose their cover, leaving them exposed to financial risks. Ensuring that maintenance records are thorough and up-to-date is critical.
How to Avoid Steep Insurance Costs in South African Sectional Title Schemes
To keep insurance costs under control, bodies corporate must implement effective preventative maintenance and risk management strategies. South African insurers are increasingly demanding that sectional title schemes have a documented 10-year maintenance plan and a well-funded Reserve Fund. Regular maintenance work, such as roof repairs and waterproofing, will not only mitigate risks but may be required to maintain or reduce insurance premiums.
Accurate Replacement Valuations: Avoiding Over-Insurance
Ensuring that your body corporate is appropriately insured with an accurate replacement valuation is essential in South Africa’s market. Appointing a reputable valuer who carries sufficient professional indemnity cover (at least R20 million) can prevent issues of over-insurance. Some valuers inflate their replacement estimates by including a safety margin, leading to over-insurance by as much as 20%. With an additional 10% annual escalation, bodies corporate in South Africa can end up overpaying by up to 40% at the end of a 3-year valuation cycle.
To avoid unnecessary costs, it’s advisable to work with a valuer who has an excellent reputation and ensures accurate, market-aligned valuations backed by sufficient indemnity cover.