How the weak rand affects insurance – why its best to be careful

PSG

Continued pressure on the rand – largely due to factors outside SA’s control – is fuelling inflation fears and adding pressure to an already struggling economy. This affects all business sectors, including the insurance industry.

Most consumer goods in SA – including cars, electronic devices and household appliances – are imported. A weaker rand means that all these items cost more – which in turn means their replacement values increase. Insurance companies are likely to experience higher claim values as the rand depreciates and may in time have to increase insurance premiums.

Adequate cover

While this isn’t good news for households and businesses already under pressure in a struggling economy, it’s crucial not to cut corners on your insurance cover.

Your home or business still faces the same risks as before.

But the consequences of a loss that is inadequately covered by your policy will be more severe now. As the replacement costs of goods increase, it becomes more difficult – and in many cases impossible – to cover shortfalls out of your own pocket.

Therefore, it’s important to bear the impact of the depreciating rand in mind when reviewing your premiums and evaluating whether your cover is sufficient for your needs.

Survey your situation

Take a look around your house, or your business. How many items are imported, and what will it cost to replace these if they must be replaced with a weaker rand?

First on your home list is probably your flat screen TV, then your laptop and cellphone – but if you look carefully, you’ll find that almost every item would be more expensive to replace due to the weaker rand.

At your business, the most obviously affected items will be trading stock, electronics and specialised machinery.

The increasing cost of imported stock as the currency declines can be catastrophic for your business if you don’t have contingency plans in place.

Calculate costs

Let’s consider how a 10% decrease in the rand affects your insurance.

If the estimated value of the home electronics included in your home contents insurance is around R100 000, it would now cost R110 000 to replace. The R500 000 car would be replaced at R550 000.

Almost all replacement parts for cars are imported, so even a relatively small car claim will cost more now than it did before.

Who will cover the shortfall?

The best way to protect yourself – or your business – is with a carefully thought through insurance plan that covers you at the full, present-day replacement cost of any items that may be lost or damaged. Stay covered If you are unsure about your current level of cover or the replacement values accounted for in your policy, speak to your advisor and give yourself that additional peace of mind. You can also update your insured value more regularly.

This article was first published on www.psg.co.za

Almost everything, including household goods, will be more expensive to replace.