Managing Common Risks and Challenges in Community Scheme Insurance
South African community schemes, encompassing over 1.2 million sectional title and HOA units per the CSOS estimates, face unique insurance challenges driven by evolving risks like balcony fires, contractor liabilities, and emergency repairs. These risks, compounded by a surge in weather-related claims due to climate volatility, demand vigilant management to avoid claim rejections and financial strain. For first-time owners, experienced investors, or Scheme Executives (Trustees or Directors), understanding these challenges ensures compliance with the Sectional Titles Schemes Management Act (STSMA) and the Community Schemes Ombud Service (CSOS) Act.
This second article in our three-part series, informed by our June 2025 webinar explores key risks and strategies. Read our first article on essential covers and stay tuned for our final piece on valuations and compliance.
Fireplaces, Braais, and Gas Installations: Fire and Nuisance Risks
Fireplaces and braais (barbecues) on balconies represent a major fire hazard in sectional title schemes, potentially endangering the unit, neighbouring sections, and the overall building structure due to proximity to flammable materials like furniture or awnings. Beyond fire risks, they often generate smoke, odours, and ash that create significant nuisances for residents, impacting health and quality of life, issues that can fall under STSMA Prescribed Management Rule (PMR) 30(e), which empowers the body corporate to address activities causing a “material negative effect” on other sections. Prescribed Conduct Rule (PCR) 6 further restricts storing flammable materials, such as charcoal or wood, without trustee consent, though gas cylinders for domestic use are typically exempt if limited to 9 kg indoors and compliant with SANS 10087-1:2024, which mandates a valid Gas Certificate of Conformity (CoC) for fixed installations.
Gas Compliance information: https://thegasman.co.za/pages/2024-new-gas-regulation-standard-south-african and https://lpgcoc.co.za/gas-coc/
In a typical scenario, if an unmaintained braai sparks a balcony fire that damages adjacent units or common property (e.g., external walls or balustrades), insurers may repudiate the claim if it stems from gross negligence, a breach of scheme conduct rules, or non-compliance with local bylaws. Well-managed schemes often amend their conduct rules to regulate or prohibit such activities outright, and trustees bear a fiduciary duty to enforce these for safety.
Contractor Liabilities and On-Site Safety
Under the Occupational Health and Safety Act (OHS Act), bodies corporate are “clients” responsible for site safety. Contractors must carry public liability insurance and Compensation for Occupational Injuries and Diseases Act (COIDA) coverage to protect against worker injuries.
Emergency Repairs and Owner Responsibilities
Insurance policies for community schemes are designed to cover sudden and unforeseen damage, such as a burst pipe caused by unexpected pressure or impact, but they explicitly exclude repairs arising from gradual wear and tear, neglected maintenance, or routine issues like corroded or worn-out pipes. This distinction is crucial, as insurers will not reimburse the cost of fixing root causes that fall under maintenance responsibilities, for instance, unblocking a drain might be excluded, though any resulting water damage could be claimable if it meets policy criteria. Damage occurring inside individual sections to personal contents, is generally not covered under the body corporate’s policy, emphasising the need for owners to secure their own contents insurance for comprehensive protection.
A key area of confusion, as highlighted in our webinar queries, revolves around responsibilities for hot and cold water systems under the STSMA. For hot water installations, owners are typically responsible for maintaining the geyser and associated pipes serving their unit, even if located on common property, as per Prescribed Management Rule (PMR) 31(1) of the STSMA Regulations. If the system serves multiple sections, the affected owners share the maintenance and costs proportionally. The body corporate handles common property overall, but hot water systems are an exception tied to the benefiting sections, for example, a geyser on a rooftop (common property) serving one unit remains the owner’s duty to repair. In contrast, cold water pipes are the body corporate’s responsibility if located on common property, irrespective of the sections they serve; however, if a cold water pipe is within a section’s boundaries and exclusively serves that section, it falls to the owner.
One query specifically addressed weekend or evening geyser repairs without a Certificate of Compliance (COC): While owners may hire their own plumbers for convenience, this risks invalid claims, as non-compliant work could void coverage and expose the body corporate to liability. To safeguard the scheme, it’s advisable to utilise insurers’ 24/7 emergency call services, which deploy approved, accredited contractors at negotiated rates, ensuring quality workmanship and compliance.
Small repairs below the excess amount are uneconomical to claim, impacting loss ratios. Claims under the excess value are often repudiated.
Additional Owner Premiums
In sectional title schemes, owners who enhance their units with high-value improvements, such as upgraded flooring (e.g., imported hardwood instead of standard tiles), premium light fittings, or bespoke kitchen cabinetry, must disclose these to the body corporate during insurance valuations to ensure adequate coverage. Under STSMA Management Rule 23(2), owners are responsible for additional insurance premiums arising from such improvements, as these increase the unit’s replacement value beyond the scheme’s standard specifications. Failure to disclose can lead to under-insurance, resulting in reduced claim payouts due to the “averaging” principle, where insurers pay only a proportion of the claim based on the insured value versus actual replacement cost. For example, if an owner installs R100,000 worth of custom marble flooring but does not disclose it, a fire claim may only cover the cost of standard tiles, leaving the owner to fund the shortfall.
These additional premiums are reflected as a distinct line item on the owner’s levy statement, ensuring transparency and allowing the body corporate to recover the increased insurance costs directly from the responsible owner. ANGOR Property Specialists facilitates this by advising owners to report improvements annually at the AGM, preparing levy statements that clearly itemise these premiums. This is particularly crucial for first-time owners, who may be unaware that undisclosed upgrades could lead to significant out-of-pocket expenses post-claim.
Another common scenario involves bond providers (banks) requiring higher insured values for units with mortgage bonds, particularly for high-value properties or those with significant improvements. Banks may mandate that the unit be insured at a replacement value that accounts for market conditions or specific risks, leading to an additional premium passed on to the homeowner via the levy statement. For instance, a bank financing a R2 million unit with premium upgrades may require R2.5 million in coverage to protect its investment, increasing the owner’s premium contribution. This ensures that, in the event of a claim, the payout covers the full cost of replacing improvements, safeguarding both the owner and the lender.
By guiding owners to disclose upgrades and managing premium adjustments, ANGOR helps avoid disputes and ensures fair claim outcomes.
Conclusion and Next Steps
Managing risks like balcony fires, contractor liabilities, emergency repairs, and owner premiums is critical to prevent claim rejections and maintain scheme stability. ANGOR’s compliance guidance, financial reporting, and secretarial support empower Executives, who retain decision-making authority. Our final article in this series covers valuations, maintenance plans, and compliance best practices to complete your insurance knowledge. Visit ANGOR’s website or contact us for risk management support.