Ryno de Kock | Head | Distribution | PSG Insure | mail me |
Times are tough, and geopolitical tensions are high in markets across the globe. South Africa is not immune to these pressures.
Continued pressure on – and depreciation of – the Rand, largely driven by external factors, fuels fears and adds financial strain to a struggling economy.
The economy must also contend with successive Value Added Tax (VAT) increases over the next two years. These developments affect all business sectors, including the insurance industry.
A volatile Rand means imported goods cost more
Most consumer goods in South Africa, including cars, electronic devices, and household appliances, are imported. A volatile Rand means that all these items cost more. As a result, their replacement values increase significantly.
Insurance companies are likely to experience higher claim values as the rand depreciates. In response, they may have to raise insurance premiums over time to remain financially viable.
Do not skimp on adequate cover
Although this situation is challenging for households and businesses already under financial pressure, cutting corners on insurance cover can be risky. Regardless of global developments, your home or business still faces the same exposure to risks as before.
However, the consequences of underinsurance are more severe now. A volatile Rand means that covering shortfalls out of pocket becomes increasingly difficult – and in many cases, impossible. It is, therefore, essential to consider this economic context when reviewing your premiums and determining if your insurance is sufficient.
Review your situation
Take a walk around your home or workplace. How many of the items you depend on are imported? And what would it cost to replace them with a volatile Rand?
Your flat-screen TV, laptop and cell phone are obvious examples. But if you look more carefully, you will notice that nearly every item would now cost more to replace. At your business, items such as trading stock, electronics and specialised machinery are especially vulnerable to price hikes due to currency fluctuations.
The increasing cost of imported goods, accelerated by a volatile Rand, could become financially devastating if you don’t have adequate contingency plans in place.
Calculate your costs
Let’s take a closer look. Suppose your home contents insurance values your electronics at R200,000. With a 10% drop in the Rand, those same items would now cost R220,000 to replace.
Additionally, importing vehicle parts or machinery will cost significantly more due to the weakened currency. This impact is especially critical for businesses dependent on international suppliers.
Stay covered despite a volatile Rand
The best way to protect yourself, or your business, is to develop an insurance plan that reflects current realities. That means ensuring your policy covers the full, present-day replacement value of your assets.
Many people do not track the exchange rate daily. Yet it’s one of many factors that can affect whether your insurance provides adequate coverage. This is where a knowledgeable short-term insurance adviser becomes invaluable.
If you’re unsure about your current policy or whether the replacement values are up to date, consult your adviser. This conversation could give you the peace of mind you need during uncertain times.
Also, don’t wait for your annual policy review to adjust your insured values. You can update your policy more regularly, such as every six months or whenever you acquire a new asset that raises your insurance needs.
