Currency fluctuations: The rand can scupper an insurance claim!

The continued strength of the rand against many major currencies highlights the importance of regular valuations on insured goods, particularly those purchased overseas, to ensure they can be adequately replaced.

Currency fluctuations are a particularly important issue in the high net worth segment as these clients’ homes often contain an array of imported goods, which are costly to replace.

“Many of our clients have expensive tastes such as imported Italian tiles and carpets. In the kitchen especially, it is important to have a proper valuation conducted. An imported Miele kitchen, for example, can cost as much as R500 000 to install. A fluctuation in the exchange rate on half a million rand can end up making a huge difference when it comes to replacing that kitchen,” comments Christelle Fourie, Managing Director of MUA Insurance Acceptances.

When and how?

Fourie says that while it may not be practical for clients to re-value their entire contents every time the Rand dips or rises, it is a good idea if there has been a sustained period of rand strength or weakness to look at the replacement cost of expensive goods in the home that have been imported.

“Clients sometimes forget that it is more expensive to buy certain electronic equipment in South Africa than overseas simply due to the import costs. However, doing a straight rand/dollar conversion is not adequate to determine the replacement cost here in South Africa, so it is essential that one has a proper valuation done with their broker.”

Insuring the irreplaceable

Fourie adds that it is important to make sure jewellery is adequately insured for its replacement value, as there are differences in this segment that also need to be taken into account. “In the case of antique jewellery and other rare items it is not always possible to actually replace the item locally, particularly with period jewellery. As such, one should always make sure that they have an accurate and up-to-date valuation certificate that includes the date at which the valuation was undertaken, the rand to US$ rate and the gold price in US$ at the time of valuation.

Motor sums insured

For motor insurance, the value of the vehicle is most often defined in relation to an external source, like the Auto-Dealer’s Guide as published by Transunion. “These values would take the effect of the exchange rates into account implicitly, since these prices reflect the values achieved for these vehicles in the market,” explains Pieter Erasmus, Head of Marketing, Sales and Distribution –Momentum STI. “These values would also be impacted by many other factors such as the state of the economy and the level of interest rates, among others. These factors, in turn, would impact the supply and demand of new and used vehicles. In this case, however, the insured is not required to take any action to update the value of their vehicle, since the value would automatically be updated.”

Opportunity for brokers

“It is not the job of a broker to track the exchange rate of the rand and constantly change a client’s policy,” notes Fourie. “However, by making sure that everything is in order, all valuation certificates are up to date and highlighting the exchange fluctuations at an annual review of their client’s needs, smart and proactive brokers can really differentiate their service from the rest.”