Mitigating risk with insurance
Owning a home or business is among the most significant milestones in many people’s lives. Here’s what property owners need to know about keeping their investment covered
While raising funds for transfer and registration fees and getting approved for a bond may be among the most critical aspects, losing your new home due to unforeseen circumstances is a real threat. Hence acquiring home insurance should be among the top priorities for any property owner.
Despite this, high inflation rates and the financial aftermath of the Covid-19 pandemic, which left many people without jobs due to large-scale retrenchments, it is undeniable that many families are under strain.
Paradoxically, according to KPMG’s Insurance Survey for 2021, insurance helped to keep business afloat amid and post-pandemic. “The past year has shown us the value of insurance to the economy. It has been a shock absorber and allowed many businesses to recover,” says the survey report.
It appears that, though undesirable, the impact of the pandemic has not been as severe on the non-life insurance industry as expected, considering the premium relief measures many non-life insurers provided to their customers.
KPMG lists relief measures such as premium holidays, delayed payback over a set period, leniency on missed debit orders, reduced premiums by allowing customers to temporarily amend cover and committing to keeping premium increases low over the next 12 months.
It is, however, noteworthy that SA’s life insurance industry is significantly larger than the non-life industry. A report by the International Monetary Fund (IMF) and World Bank in the context of a joint IMF-World
Bank Financial Sector Assessment Programme (FSAP) found that SA’s insurance penetration is among the highest in the world, mainly due to the popularity of life and investment focused insurance products such as pension funds pension preservation funds, and retirement annuities.
According to KPMG, the non-life insurance industry reported R128bn in gross written premiums (the total premiums an insurer writes during a specific period before deductions for expenses such as ceding and commission) in 2020, an increase of 5% when compared to the R122bn recorded in 2019. The top five contributors to the growth were Santam, Guardrisk, King Price, Discovery and Outsurance.
BUILDING COVER
To safeguard livelihoods and mitigate the financial strain that comes with damage to property, home and business owners must acknowledge that building cover is critical in reducing the risk of several incidents, including environmental and accidental damages.
Though SA is not a hotspot for natural disasters, the country faces a consistent and heavy rainy season this year. The impact of climate change and global warming is causing extreme weather activity, and flooding, cyclones and severe storms are becoming more prevalent, says Consult by Momentum head of short-term insurance Oswald Kuyler. For instance, the April flooding in KwaZulu-Natal was estimated to have caused damage and losses to insured assets of more than R15bn.
The bad news is that this will continue, with the World Economic Forum’s 2021 Global Risks Report citing extreme weather events, climate action failure, human environmental damage and infectious diseases as the top four systemic risks.
“This poses potential building damages to properties due to environmental factors. Homeowners, property developers and building owners need insurance that will ease their worries should any damage occur,” says Momentum Insure executive head of claims and client enterprise Vickey Swanevelder.
Some insurance companies such as Santam have warned property owners about hailstorm “hot spots” in Gauteng and KwaZulu-Natal so they can take the necessary precautions and exercise extreme vigilance in anticipation of the predicted hail season for these regions over summer.
“Varying from marble-sized to full-sized golf balls, hailstones can measure up to 7cm in diameter, so it is easy to see why they do so much irreparable damage to vehicles and property. Windscreens are shattered, vehicles dented, roofs damaged and house and business windows broken,” says Santam head of commercial lines underwriting Philippa Wild.
South Africans in these regions can prepare for hailstorms by taking several steps, such as keeping gutters clear of leaves, twigs and any other debris, including hail, as soon as it is safe to do so, advises Wild. Hail build-up is also heavy, so ensure the guttering is sound and in good order. Trimming trees close to a building helps remove branches that can cause severe damage during a storm. Lastly, ensuring all curtains, blinds or shutters are closed will help prevent broken window glass and hailstones from entering the building.
INCREASING PREMIUMS
While many people understand the importance of insurance, some cannot afford it, particularly as premiums seem to be increasing often. Kuyler explains this, saying just as the average cost of our grocery basket has increased, so has the price of our “insurance basket”.
“As a result of several macroeconomic factors — coupled with one or two ‘black swan’ events — insurers have seen a rise in their loss ratios, with many reporting a double-digit loss.
“While insurers, being in the business of risk mitigation, do plan for such scenarios, the extent to which these factors combined have affected their operations was unprecedented. They need to recoup these losses, and we can expect that short-term insurance will cost about 10%-15% more over the next few months.”
There are also specific issues that are unique to our country, such as the electricity crisis. Load-shedding has led to power surges that can cause damage to property and goods. Kuyler says these factors have created a volatile cocktail for chaos, which insurers need to factor into their pricing models. He explains that insurers are also insured through a reinsurer, which provides them with financial protection for risks that are too large for them to handle alone. “This will, in turn, impact what your insurance company charges you, either in the form of a premium increase or through remedial actions, such as an increase in your self-insure portion (excess).”
REJECTED CLAIMS
A critical component to remember when it comes to insurance is that not all claims are approved. Some are rejected. Swanevelder concedes that overlooked elements can lead to a claim being rejected and suggests ensuring that owners keep their home/building well maintained can be beneficial when claiming.
Swanevelder says it’s critical to keep a record of all documents, such as guarantees and proof of anyone who has worked on repairs at your home, in the form of proof of payment, receipts and so on. “Remember that taking photographs is also a good way of keeping a record.”
Frequently inspect roofs for damaged or loose tiles, tiles that have moved out of place, termites or other vermin that may cause damage to the roof. Tree branches should be cut away from the roof or building; roofs should be sealed once a year and thatch roofs must be cared for and maintained as per the insurer’s instructions.
“Make sure regular inspections for leaks are done as some leaks can cause severe condensation over time. Dampproofing walls also stop any rising dampness. Leaks over a prolonged period can cause the ground to soften, which could lead to structural damage and incidents such as a boundary wall collapsing. Leaks under and about appliances can also cause damage to walls and floors,” says Swanevelder.
“Pumps (borehole and swimming pool) and motors (gate and garage door) need to be serviced, as per the manufacturer’s recommendations. Proof of maintenance helps to assist with an easier claims process.
When installing gas, use a reputable gas installer that can issue a certificate. Have gas appliances such as geysers, stoves and heaters serviced as per manufacturers’ specifications. Regarding your wood fireplace, ensure that chimneys are cleaned and inspected once a year. Failure to do so can cause fire and smoke damage.”
The festive season is upon us, and it is tempting to leave items such as getting insurance off your to-do list, but experts believe this is an excellent time to get insured if you are not or to review your insurance products. “Now is not the time to compromise on your insurance cover,” says Wild. “It is essential to know exactly what you are covered for and for what amount.”
Kuyler agrees, saying that a financial adviser can play an essential role in helping you navigate your finances. “They have the expertise to custom-build solutions for you. They’ll secure better rates and handle claims on your behalf and, most importantly, they have the necessary knowledge to prevent you from switching to an insurance product that is cheaper but comes at the cost of your cover.”