It\u2019s the 1st of the month, and the vibration of your phone alerts you to yet another debit order coming off your bank account. While it\u2019s never your favourite time of the month \u2013 especially with the cost of just about everything going up \u2013 at least you know what to expect and have planned for it in your budget.<\/p>\n
That is, until you catch a glimpse of the screen only to find that your car insurance premium is suddenly a whole lot more expensive. What gives?<\/p>\n
Oswald Kuyler, head of Short-Term Insurance at Consult by Momentum, said that just as the average cost of our grocery basket has increased \u2013 with the consumer price index (CPI), which measures inflation, sitting at a staggering 7.6% \u2013 so has the price of our \u2018insurance basket.\u2019<\/p>\n
\u201cAs a result of several macroeconomic factors \u2013 coupled with one or two \u2018black swan\u2019 events \u2013 insurers have seen a rise in their loss ratios, with many reporting a double-digit loss.<\/p>\n
\u201cWhile insurers, being in the business of risk mitigation, do plan for such scenarios, the extent to which all of these factors combined have impacted their operations was unprecedented. They need to recoup these losses, and we can expect that short-term insurance, such as household contents and car cover, will cost around 10 \u2013 15% more over the next few months,\u201d he said.<\/p>\n
The Perfect Storm<\/strong><\/p>\n The impact of climate change and global warming is causing extreme weather activity and flooding, cyclones and severe storms are becoming more prevalent, said Kuyler. \u201cThis has led to a rise in claims for damage to consumers\u2019 vehicles, homes and goods.\u201d<\/p>\n The April flooding in KwaZulu-Natal, for example, was estimated to have caused damage and losses to insured assets exceeding R15 billion.<\/p>\n And the bad news is that this will continue, with the World Economic Forum\u2019s 2021 Global Risks Report citing extreme weather events, climate action failure, human environmental damage and infectious diseases as the top four risks that are systemic in nature.<\/p>\n Supply Chain Chaos<\/strong><\/p>\n Kuyler noted that motor vehicle repair and replacement costs have increased due to a significant strain on the global supply chain cycle following the pandemic. This drives up demand, which leads to a rise in the cost of every link in the supply chain. This has a knock-on effect on insurance costs.<\/p>\n The pandemic and lockdown severely restricted human movement and social activity, and as a result, accident and crime rates dropped significantly. This meant that the risk of a motor vehicle accident or a home being burgled was lower, and as a result, insurers were able to offer premium reductions in some cases.<\/p>\n \u201cAs lockdown restrictions ease, people are out and about again, and with this comes more traffic on the road, a higher likelihood of accidents and an increase in crime. Insurers may seek interventions to align with a more economically-active economy, which could include rate adjustments, restrictions on cover, or increasing the client\u2019s self-insure portion (excess).\u201d<\/p>\n \u201cSouth African Problems\u201d<\/strong><\/p>\n Then, there are also certain issues unique to our country that are driving up insurance costs for South Africans. Load shedding, for one.<\/p>\n \u201cLoad shedding has led to power surges that can cause damage to property and goods. Also, bear in mind that extended periods of \u2018planned darkness\u2019 provide more opportunity for criminals, making households more vulnerable to theft.\u201d<\/p>\n In addition, he flags that SA\u2019s economic woes and turbulent political landscape have given rise to riots and looting, which is also associated with vandalism and damage.<\/p>\n Kuyler said that all of these factors have created a volatile cocktail for chaos, which insurers need to factor into their pricing models. \u201cBear in mind that your insurer, too, is insured through a reinsurer, which provides them with financial protection for risks that are too large for them to handle alone.<\/p>\n In the case of certain events, they will bear a significant brunt of the blow, which will be reflected in their rates to insurers.<\/p>\n \u201cThis will, in turn, impact what your insurance company charges you; either in the form of a premium increase or through remedial actions, such as an increase in your self-insure portion (excess).\u201d<\/p>\n Kuyler said that this is where a qualified and experienced professional can add significant value. \u201cA financial adviser can play an important role in helping you navigate your finances. Their job is to keep abreast of changes in the insurance world that impact the finances of their clients, and they can guide you accordingly.<\/p>\n \u201cThey have the expertise to custom-build solutions for you. They\u2019ll secure better rates and handle claims on your behalf, and most importantly, they have the necessary knowledge to prevent you from switching to an insurance product that is cheaper but comes at the cost of your cover,\u201d he said.<\/p>\n
\n