Insurance is often considered a grudge purchase. That is, until it is time to lodge a claim. The same can be said of a legally prescribed valuation for sectional title schemes. Bodies corporate only appreciate its value when their claim is paid out in full without any insurer dispute. In addition, a building valuation is expected to be prudently done but low-priced.
When an insurance policy is due for renewal, many financial advisors will recommend a fixed annual escalation rate of 10%, sometimes even 15%. Does this reflect reality? What if the original sum insured was incorrect to begin with?
When a body corporate member suffers a financial loss due to an averaged or refuted claim as a result of under-insurance, the member is likely to seek alternative ways to recover the shortfall. Elected trustees have a fiduciary duty to ensure comprehensive insurance cover and the affected member may consider seeking legal recourse against the trustees.
“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.” Who will enforce this rule and ensure that the body corporate has sufficient cover?