How your premium escalation is calculated
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%.
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.
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.