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Category:
Insurance
News /
Short Term
Insurance /
Under
Insurance
/ May 2008
High Inflation Leads to Under-Insurance
Rising
inflation doesn’t only put pressure on the Reserve Bank - it also
tests short-term insurance cover. Macro factors like inflation and
rising import costs on the back of a weaker Rand can drive up
replacement values of many household items, from audio equipment to
furniture and appliances.
Yet
many policyholders fail to realise that macro pressures increase the
risk of under-insurance, warns leading short-term insurer, Mutual &
Federal.
Merrick Oeschger, Executive General Manager: Business Development
and Sales, says there is a high risk of a slow consumer response to
the under-insurance risk as years of relatively low macro pressure
may create false expectations of price stability.
He
explains: “After 2001, the rand strengthened and currency stability
ensued. In addition, the authorities enjoyed major success in
keeping inflation within the targeted 3-6% range.
"But recently CPIX topped 9% for the first time since 2003 and the
rand is again at record lows against major currencies.
“Developments like these increase the likelihood that a policyholder
will not be able to replace stolen or damaged items for anything
close to the purchase price of three or four years ago.
“The result is a growing gap between insured values and replacement
values. In effect, the individual takes personal responsibility for
covering that gap. It can come as an unpleasant surprise when the
extent of this risk is revealed through a burglary, fire or storm
damage.”
A
simple example illustrates the trap. Premiums might provide R100 000
in cover, but the current replacement value might be R200 000. In
the event of a claim, an insurer is only obliged to make pro-rata
restitution – in this case, meeting only half of the claim.
Merrick Oeschger adds: “With major claims, it can be a devastating
blow when families realise they have to make good the uncovered
portion of the loss from their own pocket.”
There is a simple and effective solution – call in a professional
short-term insurance adviser to carry out a thorough review of
replacement values.
“With inflation on the rise, there’s no better time,” says Oeschger.
“You could be surprised at the gap that has opened up and the risks
you have been running because of the mismatch between real
replacement values and the cover set down in your policy.”
Source: ITInews – Insurance
Times and Investments Online
www.itinews.co.za
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