Climate Change and the Sectional Title Cover Gap - Are Levies Subsidizing Insurance Profits?

Your body corporate's insurance premium increased 18% this year. Your trustees negotiated hard, shopped around, and were told this was "competitive." Three months later, storm damage wreaked havoc on your building. The claim was declined. The reason? "Gradual water ingress" an exclusion buried on page 47 of your policy document.

Welcome to the cover gap crisis facing South African sectional title schemes in 2025.

The Perfect Storm

South Africa's climate is changing faster than our insurance models can adapt. The KwaZulu-Natal floods of April 2022 caused over R17 billion in insured losses. The Cape Town drought cycle stressed building foundations. Johannesburg experiences increasingly violent hailstorms. Port Elizabeth faces coastal erosion. Pretoria's summer storms are becoming more intense.

Insurance companies are responding by tightening cover while simultaneously increasing premiums, a double blow that leaves bodies corporate paying more for less.

The "Sudden and Unforeseen" Trap

Most sectional title insurance policies cover damage that is "sudden and unforeseen." This sounds reasonable until you examine what it excludes:

Scenario 1: A violent storm damages your roof. Water pours into three top-floor units, causing R450,000 in damage. Covered, right? Not necessarily. During the claim assessment, the insurer's investigator finds evidence that the roof had pre-existing minor leaks. The damage is reclassified as "gradual water ingress exacerbated by storm conditions." Claim denied.

Scenario 2: Foundation cracks appear after an extended drought period followed by heavy rains, a pattern increasingly common across Gauteng. The insurer argues this is "gradual subsidence due to soil conditions," not sudden damage. Declined.

Scenario 3: Mold develops in several ground-floor units after humidity patterns shift due to changing rainfall. The insurer categorises this as "maintenance issue" rather than insured event. Owners are left with health hazards and worthless cover.

The Premium Paradox

Here's the uncomfortable math: The average sectional title scheme in South Africa pays R200-R500 per unit annually in building insurance premiums. For a 100-unit complex, that's R20,000-R50,000 per year. Over ten years, that's R200,000 to R500,000 paid in premiums.

Yet when major climate-related claims occur, payout rates are declining. Industry insiders suggest that 30-40% of weather-related sectional title claims are now partially or fully declined due to policy exclusions that didn't exist, or weren't enforced, a decade ago or new endorsements which are not highlighted at renewal stage.

The question trustees should be asking: Are we paying insurance premiums or making donations to profitable corporations?

The Cover Erosion Timeline

2015-2019: Standard policies covered most weather-related damage with minimal dispute. Premiums were stable, increasing roughly in line with inflation.

2020-2022: Post-KZN floods, insurers began introducing sub-limits for storm damage, additional excess amounts for "flood-prone areas" (broadly defined), and more stringent pre-existing condition clauses.

2023-2025: Widespread introduction of "gradual damage" exclusions, reduced cover for waterproofing failure, and explicit climate-related exclusions in renewal documents. Premium increases of 15-25% annually become normal.

The trajectory is clear: South African sectional title schemes are paying exponentially more for materially less cover, precisely when climate risks are escalating.

The Unreadable Policy Problem

The average sectional title insurance policy runs 60-80 pages of dense legal language.

Trustees (volunteers with day jobs) are expected to understand:

• The difference between "storm damage" and "rainwater ingress"

• How "wear and tear" exclusions interact with "sudden damage" cover

• What "reasonable maintenance" means in the context of aging infrastructure

• The implications of "betterment" clauses that reduce payouts for older buildings

The reality? Most trustees never read beyond the premium amount and the sum insured. The discovery of what's not covered happens during the worst possible moment, when submitting a major claim.

The Broker's Dilemma

Insurance brokers face their own impossible position. If they thoroughly explain every exclusion and limitation, clients become paralysed or seek cheaper policies with even worse cover. If they don't, they face potential professional liability when claims are declined.

The result is a system built on systematic information asymmetry, where complex products are sold to unsophisticated buyers who only discover the product's limitations when it's too late.

What Trustees Can Do Now

1. Commission a Climate Vulnerability Assessment Understand your building's specific exposure to flooding, storm damage, subsidence, and other climate risks. Cost: R8,000-R15,000. Value: Knowing what cover you actually need.

2. Demand Plain-Language Policy Summaries Require your broker to provide a one-page summary: "What IS covered" and "What IS NOT covered" in simple language. If they can't or won't, question whether they truly understand the product they're selling.

3. Create a Cover Gap Register Document every exclusion and limitation in your current policy. Compare this against your building's risk profile. Where gaps exist, explore alternative risk management (increased reserves, specific maintenance programmes).

4. Challenge Premium Increases When insurers increase premiums by 15%+, demand detailed justification. What has changed about your building? What claims have you made? If premiums are increasing while cover is decreasing, that's not insurance, it's extraction.

5. Consider Risk Retention For schemes with healthy reserves, explore higher excesses in exchange for lower premiums. Some bodies corporate are effectively self-insuring the first R100,000-R250,000 of any claim, dramatically reducing premium costs.

The Uncomfortable Question

Is the current insurance model fit for purpose in a climate-changed South Africa?

When insurance exists primarily to cover catastrophic, unforeseeable events, but climate events are increasingly both predictable and frequent, the fundamental logic of risk pooling breaks down.

Perhaps it's time to ask whether sectional title schemes should be building larger self-insurance reserves rather than funneling ever-larger sums to insurers who are systematically narrowing cover. A scheme paying R120,000 annually in premiums with a 40% claim decline rate is effectively self-insuring R48,000 per year anyway, but getting nothing in return for that portion.

The cover gap isn't an accident, it's a feature of a system that privatizes profits while socializing risk. Trustees who understand this dynamic can make informed decisions. Those who don't will continue paying more for less, wondering why their "comprehensive" insurance never seems to cover anything when it matters most.