Following the disruptive Covid-19 lockdowns of the past two years, global supply chains have struggled to normalise, leading to a spike in the price of almost all goods, says Soul Abraham, chief executive for retail at Old Mutual Insure.
This sustained hyperinflation has seen a dramatic increase in the price of many commodities such as oil, wheat, other crops, and even computer chips, leading to inflation rates last seen several decades ago.
“It is likely to persist for at least the next 12 months and is having a significant impact on our industry. Already, we are seeing a much higher inflationary figure than what was expected -almost three times our worst-case scenario – and this is significantly affecting our claims cost base, particularly in our motor portfolio,” said Abraham.
While we are working closely with our supplier base to mitigate these costs, we cannot offset all of them, and unfortunately, some must be passed on to our customers in the form of premium increases, he said.
Trends impacting inflation, and claims costs
Demand is increasing rapidly around the world after two years of Covid-19 restrictions. The sustained increase in inflation is caused by the resumption of global economic activity after long lockdowns have sent demand, and subsequently prices of goods, higher.
Supply chain disruptions are being driven by port congestion, skyrocketing freight costs, and the widely publicised semi-conductor chip shortages. China’s strategy of hard lockdown when the coronavirus is detected will also influence the supply chain. Shanghai – a major manufacturing centre globally – entered a nine-day lockdown at the time of writing.
“We are also experiencing double-digit inflation numbers in the average cost of motor vehicle claims, mostly owing to the global semiconductor and microchip shortages, which have negatively impacted the availability of new cars.
“And, the demand for used cars has exploded since the start of the pandemic, which is driving a reduction in depreciation of vehicles and leading to a higher replacement cost at the claims stage,” said Abraham.
In addition, disruptions in the global shipping and transportation arrangements have led to an increased cost of vehicle parts and repairs.
Shipment costs across the globe have increased drastically, directly impacting the costs of imported goods. A significant amount of our costs relates to imported goods. There is also a huge shortage of containers – artificially increasing the supply challenge.
“In addition, we cannot ignore the conflict in Ukraine, as a result of Russia’s invasion, which will have a knock-on effect on inflation. Ford, for example, has already said that its plant in Poland has come under pressure due to part shortages. This has led to a halt in production. There is still a lot of uncertainty on how this will play out.
“We have also noted a spike in geyser repair costs, amplified by an increased volume of geyser and accidental damage claims caused by load-shedding,” said Abraham.
To combat the sudden spike in general prices, the South African Reserve Bank and other central banks across the globe have raised interest rates, further putting pressure on the consumers’ spending power.
While it’s clear that load shedding is here to stay for the foreseeable future, South Africans do not need to be understanding of or simply accept national power shortages, saidRein Snoeck Henkemans, MD at Alumo Energy.
“Eskom remains tied to old, unreliable, and poorly maintained infrastructure – a situation which is unlikely to be resolved anytime soon. It’s simply not equipped to provide a consistent and stable supply of electricity to South Africa,” he said.
“If anything, we expect to see increasing levels of downtime coupled with rising electricity prices as it attempts to address its structural and financial issues. However, homeowners don’t have to be forever beholden to Eskom, as alternative power solutions such as solar installations are becoming increasingly accessible and affordable.”
Where many homeowners’ primary concern is solar installation costs, innovative financing solutions such as Alumo Energy’s rental payment option mean that for a once-off initiation fee of around R10,000, and a monthly cost of around R1,800, homes can be fitted with a 5kW inverter, a 3.6kWh battery and six solar panels.
“This is enough to power a fridge, freezer, up to 20 LED lights, a security system, three electronic devices, a television and more. Plus, within seven years homeowners own the system outright, and the system can also be scaled up depending on your needs,” said Alumo Energy.
According to the Department of Mineral Resources and Energy, South Africa enjoys an average of more than 2,500 hours of sunshine per year, while average solar-radiation levels range between 4.5 and 6.5kWh/m2 in one day – more than enough to consistently meet most home’s power requirements throughout the year.
By offsetting skyrocketing electricity bills, solar systems can therefore generate significant savings over the long term. Alumo Energy calculates, for instance, that after powering over 1,000 buildings across the country, it has saved its customers some R1.3 million in electricity costs.
According to studies, the potential cost-savings on power and growing demand for green homes mean that solar systems can increase property values by as much as 3% or 4% alone.
“Not only can solar help to keep the lights on while the other houses in your street go dark, but it can save you tons on your electricity bill, add value to your home, and does more for the environment,” said Alumo Energy.
“Ultimately, solar is the most readily accessible and renewable power resource available in South Africa, making it the most reasonable alternative to Eskom-supplied electricity. And by combining your solar system with gas appliances such as stoves and heaters, you can essentially end your reliance on the national grid altogether.”