The recent decline of the Rand against the US Dollar raised significant concerns. Certain economists, when comparing this decline to previous drops, have advised that the current decline relates more to South Africa specifically and less to global effects as before. This sentiment is clearly a negative one but may well be a reality. Other economists have gone on record as saying the currency may still be over-valued and that a Dollar cost of around R10.90 may be more realistic.
Since July 2012 the Rand has declined from R7.85 to the US Dollar to its current value of just over R10.00. When we compare our currency to the Australian Dollar the picture is less bleak, with the decline from July 2012 to today being from around R8.20 to its current level of just over R9.30. During this period the Australian Dollar lost significant ground against the US Dollar, so we are not alone in being affected by US Dollar strength.
Whether we view global economics as merely smoke and mirrors or not, it does unfortunately have an effect on the individual consumer and not least on one’s personal or business insurance. The current insurance market has generally been considered to be a ‘soft’ one, meaning rates are fairly low. This could be related to the market adapting to the influx of direct players and everybody vying for market share, amongst other factors. The impact of this has resulted in insurers experiencing less than satisfactory results, as claims exceed premiums on a regular basis. Insurers have now begun to make noises regarding imminent increases and cancellations of poor performing facilities with brokers, and a ‘hardening’ of the market or rate increases.
The basic concept of insurance remains the same, the losses of the few are borne by the contributions of the many and the market will generally correct itself. The lag in responding to the market amongst certain insurers may result in an increase in movement, with clients actively searching for better deals as purse strings constrict. Better performing institutions will be able to hold off increases for longer and thus increase market share.
The hardening of the market coupled with the decline in Rand strength could therefore have a double impact on premiums.
- The petrol price will continue to increase and drive the increase in price of consumer goods in general. This will therefore increase the replacement cost of goods, requiring insured values to increase at possibly higher rates.
- The cost of repairs to motor vehicles, which is already a concern amongst insurers, is also likely to rise as imported part prices increase.
- Already thin margins in the transport industry may have the negative effect of cost cutting resulting in poorer maintenance and longer hours, leading to an increase in risk and in turn an increase in claims made.
- Times of financial hardship are also seen by insurers as times of possible increase in the submission of fraudulent claims. This leads to greater scrutiny at claim time with greater delays and greater onus on the policy holder to prove their loss.
These possibilities are purely speculative and are just possible examples of some aspects of the chaos the factors create within the insurance industry.
Partly Cloudy, Clearing in the Late Afternoon
Although this does seem all doom and gloom it needn’t be. It’s possibly just a sign of what’s to come. Perhaps it’s worth looking at your insurances a little more closely, considering whether your cover is adequate and your values are in line with current replacements. Make sure too that you are not insuring items you no longer own or for which you have an adequate replacement should a loss occur like a cellular telephone for example. This exercise may result in clearer, cleaner budgeting and the double negative mentioned above may even result in a positive outcome when the economic factors both internal and external to the insurance industry stabilise.
Partnering with your broker in these times is more important than ever; identifying your needs, and making sure that cover operates when claims occur, is vital. The last thing any consumer wants is for their insurer to avoid a claim on a technicality simply because they are watching their bottom line.