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South Africa’s recent credit downgrade by two rating agencies has seen the Rand lose at least 10% of its value against the US Dollar, and the slide looks set to continue. This has serious implications for the sums insured on personal and business insurance policies when it comes to imported assets – from machinery, equipment, appliances, tech gadgets, fittings, motor vehicles and parts.
According to Mandy Barrett of insurance brokerage and risk advisors, Aon South Africa, the knock-on effect of the Rand’s depreciation along with inflationary pressures must be factored into the sums insured on all insurance policies as well as the cost of premiums further down the line. “The weaker Rand escalates the replacement cost on imported car parts, and is just one example of the potential impact that the falling Rand has on the insured value of property and assets, and in particular the cost to replace such imported items at today’s prices.
“When one considers the Rand’s depreciation against the US Dollar, UK Pound and the Euro, you could potentially be left seriously out of pocket in the event of a loss or claim if your sums insured have not kept pace. Your imported equipment, gadgets, vehicle parts, designer furniture, smart devices, apparel and so on will all come with much heftier price tags today than they did a year ago.
“It’s essential to consult with your broker who will perform an insurance needs analysis to establish replacement values at today’s prices, and if necessary, arrange for a professional valuation of your assets to ensure that you are not under-insured,” explains Mandy.
If you are under-insured in the event of a serious loss, you may find yourself in a situation where you are paid partially for a loss at claims stage. Insurers call it the ‘average formula’ which means that if your property is under-insured by 40%, for example, then you may only be paid 60% of your claim, regardless of whether it is a partial or total loss.
“Many people also insure their home for the value that they purchased the property for years ago, or at the current market value, rather than the actual replacement cost. The cost to replace your home, at today’s building prices, could have appreciated well beyond your insurance cover,” Mandy adds.
“A professional broker will confirm exactly what you are covered for and whether any exclusions or special conditions exist on your policy – an area that most people are unaware of. A broker can ensure that you are in good hands in the event of a catastrophe and ensure that you are not financially compromised come claims time. Most importantly, they’re there to protect your interests come claims time and to ensure that you get a fair and speedy settlement of your claim,” concludes Mandy.
*Aon South Africa is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and speciality insurance underwriting. The company employs more than 1,300 professionals in its 16 offices in South Africa with its head office in Sandton Johannesburg. Aon employs over 1800 people on the African continent.