According to the Association of Certified Fraud Examiners’ 2022 report on fraud, organisations worldwide are losing $4.7 trillion to occupational employee fraud each year. Alarmingly, real estate is leading the field as the industry with the highest median losses.
“Real estate businesses frequently deal with large inflows and outflows of client money in sales deposits and rental payments. This leaves them highly vulnerable to negligence or criminal actions – within and outside of the business,” says Jan Davel of PayProp.
Fidelity fund certificates
“South African property practitioners generally believe a fidelity fund certificate (FFC) covers them against internal fraud or theft,” says Davel.
“Although this is true, FFCs are subject to several conditions and procedures that aren’t widely known or factored in by most agencies.”
These include:
- The maximum amount payable to a claimant by the Property Practitioners Regulatory Authority (PPRA)’s fidelity fund per cause of action is R2 million – regardless of the amount claimed.
- The PPRA may only consider certain claims and must hold an inquiry each time a claim is lodged.
Before a claim is considered, the PPRA must ensure:
- The claimants have already laid criminal charges with the SA Police Services.
- The claim complies with all legal requirements, and due process was followed.
- The claimants substantiated their claim with proof, including records of civil action already taken against the property practitioner.
“With so many hurdles to clear, relying on an FFC to indemnify your business significantly decreases your chances of recovering from a claim. Also, the remedy might come too late to undo financial harm to your business,” says Davel.
Insurance
To address the situation, PayProp approached a group of reputable insurance experts to provide cover for those aspects not already taken care of by the firm.
The outcome of this was Agent Sure, a new insurance product for property practitioners combining fidelity guarantee - underwritten by King Price - and professional indemnity insurance - underwritten by iToo - in a single policy.
Fidelity guarantee
Residential, commercial and industrial property rental agencies deal with thousands of rands in rent money and a significant amount in damage deposits. As a result, there is a constant risk of negligent or fraudulent employees.
Davel says it is imperative for principals to maintain strict oversight of permissions. This is to prevent employees with too many administrative powers initiating and authorising payments or creating new beneficiaries and paying themselves - or an accomplice - on the agency’s banking platform.
Similarly, sales agencies could hold large client deposits and may even take occasional cash deposits, leaving agencies vulnerable to disputes or allegations of theft.
In such cases, fidelity guarantee policies indemnify principals of property businesses and all their permanent employees against damages and legal costs awarded in any claims against them.
Professional indemnity
Professional indemnity (PI) insurance indemnifies the insured against damages and legal costs awarded in a claim against them for negligent breach of duty.
This insurance covers a property business, its principal and all permanent employees in possession of fidelity fund certificates (FFCs) against legal claims for loss or damage resulting from negligent services or advice provided by property practitioners.
Availability
Agent Sure was unveiled at an exclusive launch event for PayProp clients in February. It is now also available to all individual and business property practitioners across all property transaction types, providing comprehensive and affordable risk protection. However, PayProp clients qualify for a special discount.
Writer: Sarah-Jane Meyer