Getting Real About Sectional Title Insurance

When something goes wrong in a sectional title – the roof leaks, floor cracks, a geyser bursts or there’s a small fire – who is responsible for fixing the damage?

With so many stakeholders involved, ownership of issues can get ‘blurry’, which may cause tension between trustees, owners and occupants. Recently, there’s been a proliferation of combined use buildings which add another layer of complexity as people work, stay, and play in complexes that are both residential and commercial.

The state of real estate in SA

Right now, there are about 66 000 sectional title schemes registered in South Africa (residential and commercial). We can therefore estimate the total collective schemes market size in terms of annual premium to sit somewhere in the region of R4 bn to R6 bn. Statistics South Africa’s 2017 data shows the value of residential buildings completed in 2017 rose by 22% compared to the same period in 2016. The flats/townhouses sector saw the steepest increase at 26%. Non-residential buildings’ value rose by 47%.

Our cities are getting increasingly built up. It’s speculated that by 2050, a quarter of the world will be African, with the continent’s population projected to double. Combined-use complexes may well be ‘the norm’. In Cape Town, this trend is developing at pace – just think of Harbour Arch, a six tower-behemoth that’ll boast restaurants, bars, offices, hotels, health clubs, and the CBD’s largest selection of apartments, all in one. When it comes to these multifaceted entities, cover can get complex.

What are the common issues sectional titles claim for?

In 2021 our most common claims for sectional titles were for

1. Geyser-related issues
2. Storm damage (with specific reference to the KwaZulu-Natal floods)

How does it work when it comes to claims?

A body corporate usually has adequate cover for all the buildings within a sectional title scheme – whether this be the individual housing units or common property areas – depending on the policy. This means that if a unit’s roof is damaged due to extreme wind conditions, the body corporate insurance pays toward the repair.

Things to note:

• Sectional title insurance only covers the ‘brick and mortar’ part of residential schemes and common property, not moveable contents. These must be insured by section owners or their tenants.
• Sectional title unit owners can ask the insured value of their property and request this be increased (usually at the annual general meeting). This request should come with a recommendation to the trustees to check the value of the entire building is correct. Body corporate rules require that a scheme is never under-insured.
• Owners are responsible for initiating claims via the body corporate. A tenant’s claim needs to go through the unit’s owner, before being taken to body corporate for processing. It must be signed off by a trustee or the managing agent. Owners should never claim directly from insurers. If an excess is due, the owner is responsible for paying it, according to the Sectional Title Act in South Africa.

When it comes to real estate insurance, what should one look for?

Body corporates should choose an insurer with a robust track record and deep regulatory understanding. Here are the main things to look for:

• An experienced insurer with a good track record when it comes to claims pay-outs
• An innovative product selection with a wealth of specialised solutions that are adaptable to the evolving environment
• Deep understanding of legal and regulatory compliance – for example, compliance with the Sectional Title Act
• A team that can partner with you to give sound technical and financial assistance
• A future-thinking approach to the emerging real estate risk landscape, including cyber risk
• Policies should be simple to access and understand and should be regularly reviewed
• Policies that include special features, like public liability cover (Santam covers up to R100 million), trustee liability cover (Santam offers up to R10 million), geyser maintenance, etc.

Real estate insurance of the future:

The real estate insurance of the future will focus on integrating AI, machine learning, big data and data analysis to provide hyper-personalised products to clients.

In sectional titles, the Internet of Things will play a massive role going forward. Already, Santam is using smart geyser technologies to manage potential problems before they develop. These technologies also machine-learn people’s usage patterns and can control temperatures remotely.

Cybersecurity will be another focus. By 2050, it’s estimated that the number of connected, smart devices will exceed 50 billion. This means ample opportunity for sophisticated cybercriminals. Real estate products will need to answer this with adequate cyber cover (Santam offers cover of up to R1 million) and ongoing risk management strategies with clients.

The real estate risk landscape is evolving at pace as the smart cities come to the fore. As living arrangements get more unique and complicated, it’s critical to ensure the right kind of cover for optimal peace of mind. Now may be the time to speak to a trusted financial adviser to ensure a sectional title has seamless protection for all stakeholders across the value chain.

As the country’s leading general insurer with over 22% market-share, Santam deeply understands the real estate risk landscape. We know the intricacies of all the legalities and paperwork surrounding sectional titles and have developed custom solutions to help all stakeholders to manage risk effortlessly.