The world\u2019s wealthy have a reputation for adding to their fortunes during crisis, as evidenced by huge jumps in the net worth of the likes of Jeff Bezos and Elon Musk through the 2020-21 Covid-19 pandemic.<\/p>\n
Now, with the world economy headed for a likely recession in 2023, high net worth individuals (HNWI) are aiming to continue growing and protecting their wealth.<\/p>\n
\u201cThe 2022 trends of HNWIs diversifying their asset portfolios by buying property offshore and snapping up luxury brands are likely to continue,\u201d said Tarina Vlok, MD of Elite Risk Acceptances, a subsidiary of Old Mutual Insure.<\/p>\n
Rolls-Royce recently announced the price tag of its first electric vehicle, the Spectre at $413,000 or R7.5-million. It is the most expensive EV coup\u00e9 on the market, yet there have already been more than 300 US buyers putting down deposits.<\/p>\n
Similarly, the latest results from luxury brands Louis Vuitton and Ferrari show an explosion in sales.<\/p>\n
\u201cHowever, against this climate, there are several trends playing out that make insurance complex. It is worthwhile for the affluent to account for this in their wealth plans and protecting their assets in 2023.\u201d<\/p>\n
According to the Africa Wealth Report 2022, published by Henley Global, private wealth held on the continent will rise by 38% over the next decade, with many families investing in offshore real estate to diversify their asset portfolios.<\/p>\n
Second homes are seen as a great hedge against inflationary pressures. The report also says that the affluent are buying residency by investment, which has become an optimal way for families to protect their futures, rather than to move away from their country of residence due to political or socio-economic challenges.<\/p>\n
Against this background, Vlok encourages HNWIs to look for local insurance brokers that have knowledge of the country in which their assets are located due to the vagaries of the insurance laws in different jurisdictions.<\/p>\n
Similarly, she says if the children of the HNWI individual are studying abroad, it is also important to insure the assets in that country.<\/p>\n
\u201cRemember that you cannot add foreign assets to your South African insurance policy,\u201d said Vlok, highlighting the misconception that a locally issued all-risks policy covers the assets used by the insured\u2019s children while they study abroad.<\/p>\n
\u201cAll-risk\u2019s cover is designed to protect personal items when insureds leave the country temporarily, for a business trip or holiday,\u201d she said.<\/p>\n
Another trend is that of semigration, where many HNWIs are moving to coastal towns, such as the Whale and West Coasts and the Garden Route.<\/p>\n
\u201cThere is often a big premium to pay on properties in these areas, so it is best to insure homes at replacement rather than market value. If you are moving to a remote area, remember to choose an insurer who has suppliers that has the capacity to repair or replace assets in remote areas,\u201d said Vlok.<\/p>\n
HNWIs must also appreciate the potential limitations following loss or damage to expensive \u2013 and often rare \u2013 items.<\/p>\n
\u201cIt may seem simple to insure your R1 million watch or R4 million exotic vehicle, but it can be almost impossible to replace some of these items like-for-like, especially given the current world economy\u2019s supply chain shortages and disruptions,\u201d said Vlok, adding that HNWIs often prefer replacement over cash settlement in these instances, but this is not always possible.<\/p>\n
\u201cConsider choosing a specialist insurer who is aware of the complexities around the replacement or repair of luxury items in today\u2019s climate.\u201d<\/p>\n
Events that are shaping the South African economy in 2023, which also highlight the complex and evolving nature of insurance, are load shedding and consequent power surge damages; households investing cash to go off grid; and climate risk and weather-related losses.<\/p>\n
\u201cEach of these trends requires tweaks to the HNWI\u2019s short-term insurance policy,\u201d said Vlok.<\/p>\n
As an example, she said changing weather patterns are translating into an increase in frequency and severity of weather-related claims.<\/p>\n
Cars and homes are most at risk of flood and storm, so HNWIs must ensure they have location-appropriate cover for these assets and consult with their insurers about any risk mitigation measures that may be required.<\/p>\n
Similarly, she suggests HNWIs use appropriate service providers with the right certifications and qualifications if installing back-up power supplies to hedge against load shedding.<\/p>\n
\u201cThis is why it is very important to work with specialist insurers in today\u2019s climate. To remain adequately insured, talk to your broker about higher excesses or reducing certain covers,\u201d she said.<\/p>\n