How your pre­mium es­ca­la­tion is cal­cu­lated

CityPress - - Business -

IN­FLA­TION AD­JUST­MENT

An in­surer will ap­ply an in­fla­tion­ary in­crease to premi­ums to en­sure that the cor­rect cover is in place be­cause the re­place­ment costs in­crease by at least in­fla­tion each year.

As Chris­telle Fourie, CEO of in­surer MUA, ex­plains, if the in­surer in­creases your build­ing value by 6%, your monthly pre­mium for the build­ing will also go up by 6%.

CLAIMS HISTORY

The in­surer will then re­view the fre­quency, sever­ity and type of claims ex­pe­ri­enced by the in­sured dur­ing the past year, and the pre­mium or in­sur­ance rate will be ad­justed up­wards.

This could mean a higher pre­mium for the same amount of cover. Of­ten an in­crease due to claims as well as an in­crease in prop­erty sum in­sured value can com­pound the ef­fect of the in­crease.

MO­TOR VE­HI­CLES

This can be con­fus­ing be­cause cars de­pre­ci­ate in value each year, yet the premi­ums in­crease. This is be­cause the de­pre­ci­a­tion of the ve­hi­cle only af­fects in­stances where the car is stolen or writ­ten off in an ac­ci­dent. Ac­cord­ing to Fourie, this ac­counts for only 20% of claims.

The ma­jor­ity are for re­pairs that are af­fected by in­fla­tion and also heav­ily in­flu­enced by a weaker rand.

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