Valuations, Maintenance Plans, and Compliance in Community Scheme Insurance

Insurance Valuations, maintenance plans, and legal compliance are pivotal to avoiding under-insurance, claim rejections, and penalties. For first-time owners, investors, or Scheme Executives, mastering these ensures financial protection and compliance with the Sectional Titles Schemes Management Act (STSMA) and the Community Schemes Ombud Service (CSOS) Act.

ANGOR Property Specialists supports Scheme Executives with compliance advice, financial management (e.g., levy statements, creditor payments with approval, monthly reports), and secretarial duties like scheduling AGMs and circulating notices.

While ANGOR provides expert guidance, Scheme Executives make final decisions to uphold fiduciary duties. This final article in our three-part series, informed by our June 2025 webinar, covers valuations, maintenance plans, and compliance. Review our previous articles on essential covers and risk management for a complete picture.

Insurance Valuations: Legal and Practical Essentials

STSMA Regulations Section 23(3) mandates professional insurance valuations every three years to determine replacement costs

• “23(3) A body corporate must obtain a replacement valuation of all buildings and improvements that it must insure at least every three years and present such replacement valuation to the annual general meeting.”

Under-insurance triggers “averaging”: if a building is valued at 80% of its replacement cost, only 80% of a claim is paid, leaving the body corporate liable for shortfalls. For example, a R1 million claim on an under-insured scheme could result in a R200,000 shortfall, impacting all owners.

ANGOR advises on scheduling valuations and provides financial reports to track adjustments, ensuring compliance.

10-Year Maintenance, Repair, and Replacement Plans (MRRP)

The Maintenance, Repair, and Replacement Plan (MRRP), required under STSMA Section 3(1)(b) and Regulation 22, sets out the planned upkeep and renewal of major capital items over a 10-year period. Its purpose is to ensure these items are properly maintained, helping to prevent insurance claim denials caused by deferred maintenance.

The STSMA defines “major capital items” as:

wiring, lighting and electrical systems, plumbing, drainage and storm-water systems, heating and cooling systems, any lifts, any carpeting and furnishings, roofing, interior and exterior painting and waterproofing, communication and service supply systems, parking facilities, roadways and paved areas, security systems and facilities, and any other community and recreational facilities.

When to Claim: Balancing Excess and Loss Ratios

The excess, or deductible, is the initial amount the body corporate (or the individual owner under STSMA Management Rule 23(2)(b)) must pay out-of-pocket for each approved insurance claim before the insurer covers the remaining loss. Claims for damages equal to or less than the excess are uneconomical, as the insurer pays nothing, yet the claim is recorded, adversely affecting the scheme’s loss ratio, the ratio of claims paid to premiums earned (claims/premiums). Similarly, claims only marginally above the excess, such as a R5,100 claim against a R5,000 excess, yield minimal payouts (e.g., R100 after the excess is deducted), making them impractical due to administrative costs and loss ratio impacts.

Strategic management is key: Scheme Executives should opt to fund minor repairs from the reserve fund, preserving the scheme’s claims history. Proactive maintenance, aligned with the STSMA-mandated 10-year Maintenance, Repair, and Replacement Plan (MRRP), further reduces the need for small claims by addressing issues before they escalate.

Compliance and Best Practices

Trustees in Sectional Title Schemes play a critical role in ensuring compliance with insurance-related obligations under the Sectional Titles Schemes Management Act (STSMA) and Community Schemes Ombud Service (CSOS) Act, focusing on areas within their direct control to safeguard the scheme’s financial stability and legal standing. Key responsibilities include annual fire equipment servicing, annual policy reviews and renewals, full insurance valuations every three years, and facilitating owner notifications for improvements to adjust insurance coverage. These practices, supported by ANGOR Property Specialists’ compliance advice, financial management, and secretarial services, ensure adherence to legal frameworks while protecting owners’ investments.

Annual Fire Equipment Servicing and Certification: Under SANS 1475-1:2024, fire equipment such as extinguishers, hose reels, and alarms in common areas must be serviced annually by accredited providers, with a Certificate of Compliance issued to confirm functionality. This is critical, as insurers may reject fire-related claims if equipment is unmaintained. ANGOR coordinates quotations for certified service providers and tracks compliance ensuring Trustees meet their fiduciary duties under STSMA Section 3(1)(l) to maintain common property safety.

Annual Policy Review and Renewal: Scheme Executives must review the scheme’s insurance policy annually with a specialist broker to confirm adequate coverage for buildings, public liability (minimum R10 million per STSMA), and fidelity cover (minimum equalling the administrative budget plus reserves). This includes verifying inclusions like power surge cover for solar systems and addressing exclusions.

Triennial Insurance Valuations: STSMA Regulation 23(3) & (4) mandates a professional valuation of all buildings every three years to determine accurate replacement costs, including fixtures like geysers and improvements.

Owner Notifications for Improvements: Owners must inform Scheme Executives of improvements (e.g., upgraded flooring, premium light fittings) at the AGM or immediately after installation to update the insurance policy. This ensures the unit’s replacement value reflects these upgrades, preventing under-insurance and ensuring fair claim payouts. Additional premiums for these improvements are added as a line item on the owner’s levy statement, as per STSMA Regulation 23(2)(a).

Conclusion and Reflection

Effective valuations, MRRPs, and compliance safeguard community schemes against under-insurance and legal risks, ensuring stability amid rising claims. ANGOR’s guidance in financial and secretarial support empower Scheme Executives.

Revisit our earlier articles on essential covers and risk management for a holistic understanding, and contact ANGOR for expert insurance support.

Accurate Insurance Coverage: Why Performing a Replacement Valuation Every Three Years is Critical

What is the Maintenance, repair and replacement plan (10 year plan)?