Published: 29 July 2026
Insurance does not end with the purchase of an insurance policy. Once appropriate cover has been obtained, the Trustees have an ongoing responsibility to ensure that the Body Corporate continues to comply with the insurance requirements of the Sectional Titles Schemes Management Act (STSMA), the Prescribed Management Rules (PMRs) and the CSOS Regulations.
Effective insurance governance requires more than simply renewing the policy each year. Trustees must ensure that the buildings remain adequately insured, replacement values are reviewed, statutory insurance is maintained, insurance proceeds are applied correctly, and owners and bondholders are afforded the rights provided by the legislation. Failure to fulfil these responsibilities may expose the Body Corporate and its members to unnecessary financial risk.
This article examines the governance responsibilities that accompany the Body Corporate's insurance obligations and provides Trustees with practical guidance on administering the scheme's insurance in accordance with the legislation and recognised best practice.
Effective insurance governance requires more than simply renewing the policy each year. Trustees must ensure that the buildings remain adequately insured, replacement values are reviewed, statutory insurance is maintained, insurance proceeds are applied correctly, and owners and bondholders are afforded the rights provided by the legislation. Failure to fulfil these responsibilities may expose the Body Corporate and its members to unnecessary financial risk.
This article examines the governance responsibilities that accompany the Body Corporate's insurance obligations and provides Trustees with practical guidance on administering the scheme's insurance in accordance with the legislation and recognised best practice.
ANNUAL GENERAL MEETING (AGM) RESPONSIBILITIES
Budgeting for Insurance - Section 3(1)(a)(iii)
One of the primary functions of the Body Corporate, exercised through the Trustees, is to ensure that sufficient provision is made in the administrative budget for the annual insurance premiums.
As the Body Corporate has a statutory duty to insure the buildings and other compulsory risks in terms of the STSMA, Trustees must ensure that adequate funds are budgeted for and that the insurance premiums are paid timeously to avoid any lapse in cover.
Trustees should also take into account any anticipated increases in premiums, changes to replacement values, additional insurance approved by the members, and any changes in the scheme's risk profile when preparing the annual budget.
As the Body Corporate has a statutory duty to insure the buildings and other compulsory risks in terms of the STSMA, Trustees must ensure that adequate funds are budgeted for and that the insurance premiums are paid timeously to avoid any lapse in cover.
Trustees should also take into account any anticipated increases in premiums, changes to replacement values, additional insurance approved by the members, and any changes in the scheme's risk profile when preparing the annual budget.
Did You Know?
In terms of Section 3(1)(c) one of the expenses that may be recovered through an Exclusive Use Area (EUA) contribution is the cost of insuring that exclusive use area.
For example, where an owner has the exclusive use of a storeroom, garage or other insured exclusive use area, the rules may provide that the cost of insuring that area is recovered from the owner through the exclusive use area contribution.
For example, where an owner has the exclusive use of a storeroom, garage or other insured exclusive use area, the rules may provide that the cost of insuring that area is recovered from the owner through the exclusive use area contribution.
Considering Additional Insurance - PMR 23(8)(a)and(b)
Trustees should regularly review whether the compulsory insurance remains adequate for the scheme's changing needs. Where additional insurance is considered appropriate, the Trustees must obtain the approval of the members by special resolution before the additional cover is arranged.
Examples:
- mixed-use developments;
- high-value recreational facilities;
- unusual risks;
- increased liability limits.
Financial Statements - PMR 26(1)(c)(v)
The prescribed management rules require the financial statements to contain sufficient information to enable members to understand the Body Corporate's insurance position.
This includes:
This ensures transparency and enables members to verify that adequate insurance remains in place.
This includes:
- the insurance premiums paid during the financial year;
- any insurance proceeds received;
- any payments made to members in terms of the policy; and
- the expiry date of each insurance policy.
This ensures transparency and enables members to verify that adequate insurance remains in place.
The Three-year valuation - PMR 23(3)
The Body Corporate is required to obtain an independent replacement valuation of all the buildings and improvements that it is required to insure at least once every three years.
The purpose of the valuation is to determine the current cost of rebuilding the scheme, rather than its market value, so that the buildings remain adequately insured. The replacement valuation must be presented to the members at the Annual General Meeting, enabling the Trustees and owners to compare the valuation with the current insured value and determine whether any adjustments to the insurance cover are required.
The purpose of the valuation is to determine the current cost of rebuilding the scheme, rather than its market value, so that the buildings remain adequately insured. The replacement valuation must be presented to the members at the Annual General Meeting, enabling the Trustees and owners to compare the valuation with the current insured value and determine whether any adjustments to the insurance cover are required.
The Body Corporate must:
Only the first two are expressly stated, but the third is clearly the purpose of the requirement
"...all buildings and improvements that it must insure..." means not just: the buildings.
Trustees should think about:
The valuation should reflect everything the Body Corporate has a legal duty to insure, not just the primary & utility sections.
- Obtain the valuation.
- Present it at the AGM.
- Use it to determine whether the insurance remains adequate.
Only the first two are expressly stated, but the third is clearly the purpose of the requirement
"...all buildings and improvements that it must insure..." means not just: the buildings.
Trustees should think about:
- clubhouses;
- guardhouses;
- staff accommodation;
- boundary walls;
- other insurable improvements.
The valuation should reflect everything the Body Corporate has a legal duty to insure, not just the primary & utility sections.
Annual Replacement Value Schedules - PMR 23(4)(a)and(b)
In addition to obtaining a replacement valuation at least every three years, the Body Corporate represented by the Trustees must prepare schedules for every Annual General Meeting showing:
These schedules enable owners to review the current insurance values and ensure that the Body Corporate's insurance remains appropriate.
These schedules must be presented to the AGM where the members approve them with or without amendment.
The schedules ensure that the insurance renewal reflects the current rebuilding costs of the scheme.
- the estimated replacement value of all the buildings and improvements to the common property; and
- the estimated replacement value of each individual section, excluding the value of the land.
These schedules enable owners to review the current insurance values and ensure that the Body Corporate's insurance remains appropriate.
These schedules must be presented to the AGM where the members approve them with or without amendment.
The schedules ensure that the insurance renewal reflects the current rebuilding costs of the scheme.
Why is the land excluded?
Insurance is intended to cover the cost of rebuilding the buildings and improvements following an insured event.
The land itself is not destroyed by fire, storm or other insured perils and therefore does not require replacement insurance. For this reason, the replacement value of each unit excludes the value of the land.
The land itself is not destroyed by fire, storm or other insured perils and therefore does not require replacement insurance. For this reason, the replacement value of each unit excludes the value of the land.
Why this matters
The total replacement value of all the individual sections should equal the replacement value of the buildings as a whole.
This allows Trustees and owners to verify that:
This allows Trustees and owners to verify that:
- the replacement values remain appropriate;
- owners have declared any significant alterations or improvements requiring additional cover;
- the insurance schedules remain accurate; and
- the scheme continues to be adequately insured
Differences between Rule 23(3) and Rule 23(4):
Rule 23(3) = Independent valuation
Rule 23(4) = Annual schedules
Those are two separate obligations.
Many Trustees think "We had a valuation two years ago, so there's nothing to do this year."
Not true. Even in years when a new valuation is not required, Trustees must still present updated insurance schedules at the AGM and satisfy themselves that the insurance values remain appropriate.
- Done at least every three years.
- Usually by a professional valuer.
Rule 23(4) = Annual schedules
- Prepared every year.
- Presented at every AGM.
- Used to support the annual insurance renewal.
Those are two separate obligations.
Many Trustees think "We had a valuation two years ago, so there's nothing to do this year."
Not true. Even in years when a new valuation is not required, Trustees must still present updated insurance schedules at the AGM and satisfy themselves that the insurance values remain appropriate.
First General Meeting (Inaugural Meeting) - PMR16(2)(a)
The first general meeting must include a comprehensive summary of the rights and obligations of the Body Corporate under the policies & contracts entered into by the Body Corporate.
The developer is responsible for arranging the initial insurance policy on behalf of the Body Corporate before the first general meeting. At the first general meeting, the members must consider whether to ratify that insurance, together with any other policies and contracts entered into by the developer on behalf of the Body Corporate. This allows the owners to decide whether the insurance remains appropriate for the scheme. Once the Body Corporate is established, the owners decide whether that insurance remains appropriate.
The developer is responsible for arranging the initial insurance policy on behalf of the Body Corporate before the first general meeting. At the first general meeting, the members must consider whether to ratify that insurance, together with any other policies and contracts entered into by the developer on behalf of the Body Corporate. This allows the owners to decide whether the insurance remains appropriate for the scheme. Once the Body Corporate is established, the owners decide whether that insurance remains appropriate.
Every Annual General Meeting thereafter - PMR 17(j)(ii)and (iii)
The legislation requires the AGM to consider three separate insurance decisions.
The owners must:
1. Approve the replacement value schedules with or without amendment
This isn't merely receiving them. It is an approval.
2. Determine the extent of the insurance cover by the Body Corporate
This means the members are actively deciding:
Determining the extent of the insurance is more than deciding whether to renew the policy. Members are required to consider whether the level of insurance remains appropriate for the scheme. This may include determining appropriate Public Liability limits, Fidelity Insurance, additional insurance authorised under the PMRs, and any optional extensions of cover recommended by the insurer or broker.
3. Confirm or vary the insurance policy
Again, this is an active decision, not merely noting the renewal.
Although the STSMA and the Prescribed Management Rules do not specifically require a Summary of Benefits to be presented at each Annual General Meeting, members are required to approve the replacement value schedules and determine the extent of the Body Corporate's insurance cover in terms of PMR 23(6), (7) and (8) . As insurance policies are often lengthy and complex, it is regarded as good governance for Trustees to make a Summary of Benefits available to members. The Summary of Benefits provides a concise overview of the Body Corporate's insurance cover, limits of indemnity, excesses, key conditions and exclusions, enabling members to make informed decisions regarding the scheme's insurance arrangements and related budget.
The owners must:
1. Approve the replacement value schedules with or without amendment
This isn't merely receiving them. It is an approval.
2. Determine the extent of the insurance cover by the Body Corporate
This means the members are actively deciding:
- Public liability cover
- Fidelity cover
- higher liability
- additional insurance
- optional covers
Determining the extent of the insurance is more than deciding whether to renew the policy. Members are required to consider whether the level of insurance remains appropriate for the scheme. This may include determining appropriate Public Liability limits, Fidelity Insurance, additional insurance authorised under the PMRs, and any optional extensions of cover recommended by the insurer or broker.
3. Confirm or vary the insurance policy
Again, this is an active decision, not merely noting the renewal.
Although the STSMA and the Prescribed Management Rules do not specifically require a Summary of Benefits to be presented at each Annual General Meeting, members are required to approve the replacement value schedules and determine the extent of the Body Corporate's insurance cover in terms of PMR 23(6), (7) and (8) . As insurance policies are often lengthy and complex, it is regarded as good governance for Trustees to make a Summary of Benefits available to members. The Summary of Benefits provides a concise overview of the Body Corporate's insurance cover, limits of indemnity, excesses, key conditions and exclusions, enabling members to make informed decisions regarding the scheme's insurance arrangements and related budget.
MANAGING INSURANCE FUNDS
Insurance proceeds - Section (3(1)(j)
In terms of the STSMA, any insurance proceeds received in respect of damage to the buildings must be applied towards reinstating or repairing the buildings.
This requirement is subject to section 17 of the Act, which deals with the destruction of buildings and the application of insurance proceeds under reconstruction of a scheme, as well as the rights of any registered bondholder.
Regulation 24(3)((b) of the PMRs requires that any insurance proceeds received by the Body Corporate in respect of damage or destruction to property for which it is responsible must be paid into the reserve fund. This generally refers to common property, common property infrastructure and any other property that the Body Corporate has the responsibility to maintain.
This ensures that the insurance proceeds remain separately accounted for and are available to repair or replace the damaged property. Trustees should therefore ensure that insurance proceeds are not treated as additional income or used to fund unrelated expenditure.
This requirement is subject to section 17 of the Act, which deals with the destruction of buildings and the application of insurance proceeds under reconstruction of a scheme, as well as the rights of any registered bondholder.
Regulation 24(3)((b) of the PMRs requires that any insurance proceeds received by the Body Corporate in respect of damage or destruction to property for which it is responsible must be paid into the reserve fund. This generally refers to common property, common property infrastructure and any other property that the Body Corporate has the responsibility to maintain.
This ensures that the insurance proceeds remain separately accounted for and are available to repair or replace the damaged property. Trustees should therefore ensure that insurance proceeds are not treated as additional income or used to fund unrelated expenditure.
Reserve fund - PMR 25(3)(iv) and PMR 24(5)(iv)
The Prescribed Management Rules permit the Body Corporate to use money from the reserve fund where necessary to obtain or maintain adequate insurance for the property that the Body Corporate is required to insure.
This recognises the importance of ensuring that the scheme remains adequately insured, even where sufficient funds may not immediately be available in the administrative fund.
However, this is not a discretionary power without accountability. Where Trustees use reserve funds for this purpose, they must report the expenditure to the members as soon as reasonably possible.
Therefore, the Act isn't giving Trustees unrestricted access to the reserve fund—it allows them to protect the scheme's insurance, but they remain accountable to the members.
This recognises the importance of ensuring that the scheme remains adequately insured, even where sufficient funds may not immediately be available in the administrative fund.
However, this is not a discretionary power without accountability. Where Trustees use reserve funds for this purpose, they must report the expenditure to the members as soon as reasonably possible.
Therefore, the Act isn't giving Trustees unrestricted access to the reserve fund—it allows them to protect the scheme's insurance, but they remain accountable to the members.
RIGHTS OF OWNERS AND BONDHOLDERS
Right of Access to the Insurance Policy - section 3(1)(s))
Trustees must, upon written request, make available the current insurance policy together with proof of payment of the latest insurance premium.
This right may be exercised by:
This provision promotes transparency and enables owners and bondholders to verify that the scheme's insurance remains in force.
This right may be exercised by:
- an owner;
- a registered bondholder; or
- any person authorised in writing by the owner or bondholder.
This provision promotes transparency and enables owners and bondholders to verify that the scheme's insurance remains in force.
Owners Right to Obtain Additional Insurance - Section 14(1) and (2)
Even where the Body Corporate has insured the buildings and there is a valid insurance policy in place, an owner may take out additional insurance in respect of risks that are not covered by the Body Corporate's policy.
The legislation does not limit an owner to insuring only damage to his or her section. Owners may also insure against any other insurable risks or interests they consider appropriate.
The legislation does not limit an owner to insuring only damage to his or her section. Owners may also insure against any other insurable risks or interests they consider appropriate.
Bondholder Cession - PMR 23(5)
Legislation stipulates that “On written request by any registered bondholder... the Body Corporate must record the cession to that bondholder of that member's interest in any of the proceeds of the insurance policies..."
A cession simply means the transfer of a right.
In this case, it means the owner transfers (cedes) his or her right to receive insurance proceeds to the bank, to the extent of the bank's interest.
If a bank holds a registered mortgage bond over a section, it may request the Body Corporate to record that the owner's rights to any insurance proceeds relating to that section have been ceded to the bank. This protects the bank's financial interest in the property and ensures that it has a recognised claim to the insurance proceeds where appropriate.
This provision doesn't mean the insurer automatically pays all insurance proceeds directly to the bank.
It simply recognises the bank's legal interest.
In practice, the proceeds are generally applied to reinstate the building or otherwise dealt with in accordance with the policy and the circumstances of the claim.
A cession simply means the transfer of a right.
In this case, it means the owner transfers (cedes) his or her right to receive insurance proceeds to the bank, to the extent of the bank's interest.
If a bank holds a registered mortgage bond over a section, it may request the Body Corporate to record that the owner's rights to any insurance proceeds relating to that section have been ceded to the bank. This protects the bank's financial interest in the property and ensures that it has a recognised claim to the insurance proceeds where appropriate.
This provision doesn't mean the insurer automatically pays all insurance proceeds directly to the bank.
It simply recognises the bank's legal interest.
In practice, the proceeds are generally applied to reinstate the building or otherwise dealt with in accordance with the policy and the circumstances of the claim.
Bondholder protection – PMR 23(1)(d)
23(1)(d) states that “the policy is valid and enforceable by any holder of a registered mortgage bond... notwithstanding any circumstances whatsoever which would otherwise entitle the insurer to refuse payment..."
This means that the insurer cannot simply refuse to pay a claim if doing so would prejudice the bank that holds a registered mortgage bond over the unit.
Many units are financed through a mortgage bond. The legislation therefore requires the insurance policy to protect the interests of the bondholder. This means that the insurer cannot simply refuse to honour the policy where doing so would prejudice a registered bondholder, unless the insurer has first cancelled the cover by giving the bondholder at least 30 days' written notice.
This provision is there to protect the bank's security
This means that the insurer cannot simply refuse to pay a claim if doing so would prejudice the bank that holds a registered mortgage bond over the unit.
Many units are financed through a mortgage bond. The legislation therefore requires the insurance policy to protect the interests of the bondholder. This means that the insurer cannot simply refuse to honour the policy where doing so would prejudice a registered bondholder, unless the insurer has first cancelled the cover by giving the bondholder at least 30 days' written notice.
This provision is there to protect the bank's security
CONCLUSION
Effective insurance governance is about far more than renewing the Body Corporate's insurance policy each year. Trustees have an ongoing statutory responsibility to ensure that the scheme remains adequately insured, that replacement values are reviewed, that insurance proceeds are applied correctly, and that the rights of owners and bondholders are protected in accordance with the STSMA, the Prescribed Management Rules and the CSOS Regulations.
By understanding these responsibilities and applying sound governance principles, Trustees can make informed decisions, promote transparency, protect the Body Corporate's assets and reduce the financial risks faced by the scheme and its members.
Ultimately, effective insurance governance is not simply about complying with legislation—it is about safeguarding the Body Corporate's buildings and financial interests of all its members, while ensuring that the scheme is financially prepared to recover from unexpected events.
By understanding these responsibilities and applying sound governance principles, Trustees can make informed decisions, promote transparency, protect the Body Corporate's assets and reduce the financial risks faced by the scheme and its members.
Ultimately, effective insurance governance is not simply about complying with legislation—it is about safeguarding the Body Corporate's buildings and financial interests of all its members, while ensuring that the scheme is financially prepared to recover from unexpected events.
Annual Trustee Insurance Checklist
Related Articles
If you found this guide helpful, the following guides explore related insurance topics in detail:
- Understanding Body Corporate Insurance for Trustees –– Part one - explains the governance responsibilities that accompany those insurance obligations
- Body Corporate Insurance – What Every Owner Should Know – Understand what is covered by the Body Corporate's insurance policy, what owners should insure themselves and when additional insurance may be required.
- Who Pays the Excess – Common Insurance Disputes in Section Title Schemes – Understand the responsibility for paying and excess and the numerous factors to take into account when determining responsibility.
- Understanding the Summary of Benefits – Understand what each section of the Summary of Benefits means and why it matters to your Scheme
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