The importance of insurance valuations
Insurance valuations are priceless
Severe weather events, floods and fires are a reminder of the importance of having adequate insurance cover in place. Indeed, this is considered so important that the most recently updated legislation covering sectional title schemes places specific obligations on trustees and body corporates in this regard.
Trustees are responsible for ensuring that the scheme has sufficient cover in place, and also to have independent property valuations carried out every three years.
Failure to cover
Where these valuations are neglected, there can be significant financial impact on the body corporate. Over- and under-insurance are equally problematic, and can result in inflated premiums and excessive replacement values. Additional costs will then have to be passed on to owners in the scheme through increased levies. Of course, this is never a popular move!
For example, where insured values under a policy are not updated regularly, they will be increased in line with the premiums. The rate of increase can vary from 8 – 15% per year, and can result in a vicious cycle whereby inflated values lead to excessive premiums.
These issues can be avoided through regular valuations. Using a professional independent firm of valuers will tick the legislation compliance box, and make sure that replacement values for property are accurate.
The morning after a hailstorm, flood or fire is far too late to find out that this has not been done.
A more professional approach
One advantage of the recent updates to sectional title scheme legislation is that independent insurance valuations are now a legal requirement, so they tend to happen much more regularly. Of course, the usefulness of any valuation depends on selecting the correct professional valuer. Not only should they have experience specifically relating to body corporate valuation requests, but they themselves must have adequate professional indemnity cover.
This will give the trustees a measure of recourse in the event that the valuation proves to be inaccurate.
Peace of mind
The greatest benefit of having the correct insurance cover in place, is never having to think about it. By arranging regular valuations, trustees can reassure owners that their properties are adequately insured, whilst still avoiding the excess costs associated with failing to regularly update these numbers. This is one more way that the board of trustees can demonstrate their diligence and increase the confidence that scheme members have in them. This in turn will contribute to better relations and an atmosphere of mutual trust which benefits both trustees and owners.
People like to be able to anticipate costs – and cost rises. Arranging regular valuations helps with this by removing a great deal of uncertainty – otherwise, premiums and values can fluctuate.
Accurate valuations from experienced valuers can be used to either increase or reduce building replacement values, as applicable. Armed with this knowledge, trustees can then negotiate better deals with insurers, as they can point to recent, professional valuations as evidence of any change in value.
Trustees also benefit as by fulfilling their statutory obligations in this area, they can relieve themselves of responsibility in the event of a situation in which claims need to be made.
A stitch in time
As with many other obligations relating to property, acting timeously (and in accordance with legislation) tends to reduce costs (both short- and long-term) and avoid sudden, unpleasant surprises.
Not every event can be anticipated, but trustees can prepare for possible fires, floods or storms – and their consequences – by ensuring that adequate property insurance is in place. There is a fine balance between insufficient and excessive cover (both of which can prove to be expensive mistakes).
By complying with the requirement to have regular valuations carried out, trustees can remain in the sweet spot where both replacement values and premiums are acceptable to owners.
For expert advice on sectional title schemes…
Contact Solver Property Services today for advice on any of the points covered in this newsletter. Alternatively, seek the advice of a professional valuer with experience of sectional title schemes.
Disclaimer: Kindly note that the above article is merely for information, and is not intended to be comprehensive, to provide legal advice or to assist Community Schemes with the discharge of their fiduciary duties. It does however cover some important aspects on trustee responsibilities, body corporate insurance, Sectional Title insurance replacement values, and more.
Solver is amongst the larger property managing agent companies in South Africa and have been managing community schemes effectively since 2005. High-rise sectional title buildings, Homeowners Associations, share blocks, apartments, we manage it all. For more information, please contact 010 822 2882. Solver Property Services has a team of experienced Property Managers / Managing Agents that can assist you.