Fast little loans
You can expect your short-term insurance premiums to continue to increase at a rate above inflation over the next 12 months due to a series of disasters both here and broad.
But the upside is that many adequately insured policyholders, from those whose motor vehicles were written off after a two-minute hailstorm in Gauteng last month to those who lost their homes in the fire at Cape St Francis earlier this month, have been saved from financial discomfort.
South African policyholders are going to be hit by premium increases as a result not only of a series of local “mini-catastrophes” – including the Cape St Francis fire, the Gauteng hailstorm, and floods in the Eastern Cape and in Mpumalanga earlier this year – but also the natural disasters overseas, such as Hurricane Sandy in the United States last month and last year’s earthquake in New Zealand and tsunami in Japan.
While South Africans, through premium increases, will share in paying for the overseas disasters, the cost of the local disasters to insurance companies has been mitigated, because the bulk of their risk has been laid off with international re-insurance companies.
Barry Scott, chief executive of the South African Insurance Association, says South Africans will not pick up the full cost of the Eastern Cape floods and the Gauteng hailstorm, estimated at R1 billion for both, or the estimated R400 million for the Cape St Francis fire, which destroyed about 100 upmarket seaside homes.
However, the US$50 billion in damages caused by Hurricane Sandy will be shared among policyholders worldwide, including South Africa.
Scott says the Cape St Francis fire is the single most expensive disaster to hit the local insurance industry. Before that, the biggest claim for a single event was R300 million for damage and losses caused by a loose bolt at the Koeberg nuclear power plant in 2005.
Ian Kirk, chief executive of Santam, which is the country’s biggest short-term insurance company, says the cost of re-insurance will rise because of the disasters.
Premiums will “definitely come under pressure, as the average claim costs and the frequency of claims have both been on the rise over the past year”, Kirk says.
Policyholders can expect their premiums to increase when they renew their policies, but the increases will be applied on a “very selective” basis, with people with a low claims history continuing to receive good rates from insurers, he says.
The average cost of claims has been affected by the increasing cost of imported goods, particularly motor vehicle parts, Kirk says.
Scott says the biggest problem in South Africa is the growing R18 billion in motor vehicle claims annually. And, he says, most of the claims are not a result of theft, but are due to bad driving and unroadworthy vehicles.
He says motor vehicle theft has dropped by almost 60 percent over the past 10 years due to measures such as the introduction of tracking devices, which reduce premiums.
Scott expects that claims for theft will drop further now that it is compulsory for all new motor vehicles to be sprayed with thousands of micro-dots, each one carrying microscopic coded information unique to a particular vehicle. Even if the vehicle is chopped up, it can still be identified. Some manufacturers have been spraying vehicles with microdots for a number of years.
Also coming on stream is a decision by the insurance industry that quality-approved alternative parts, rather than those of the motor vehicle manufacturers, must be used when repairing vehicles once their warranty periods have expired.
Scott says the issue of motor vehicle manufacturers insisting that their parts must be used for a warranty to be honoured still has to be tackled in South Africa. This practice has been banned in many countries around the world, he says.
The insurance industry has set up a quality-checking structure to ensure that only acceptable alternative parts are used, Scott says.
The German alternative parts standards body, TUV Rhinelands, which has an international reputation, will be checking and approving alternative motor vehicle parts in South Africa on behalf of the insurance industry.
MAKE SURE YOU TAKE COVER
It is essential that you take out short-term insurance so you will not get into financial difficulties if your home and its contents are destroyed in a fire, or if your car is washed away in a flood or damaged by a hailstorm, Santam chief executive Ian Kirk says.
Kirk says it is not good for you or the economy if you are not properly insured and cannot recover financially from one of life’s unexpected shocks.
He says it is important to ensure you have:
* Adequate insurance for your assets, such as your home and its contents, and your motor vehicle.
* Checked the value of your assets recently, or at least when the policy was renewed. If your assets are not insured for their correct values (in other words, if you are under-insured), your benefit will be reduced proportionally by the insurer.
* Received professional advice on how much insurance you need and the appropriate premiums.
* Taken steps to manage your risks. There are some risks you may neither wish nor need to insure, because you can carry the loss without its affecting your financial situation significantly.