Fluctuating Rand could leave consumers underinsured
Statistics presented at the State of the Nation address showed that the Rand depreciated by 17.6% against the US dollar in 2013 and a further 5% since the beginning of 2014. With the Rand continuing to weaken against major international currencies, consumers could be put at additional risk of underinsurance, largely as a result of inflation and rising replacement costs for foreign goods and parts.
According to Christelle Fourie, Managing Director of MUA Insurance Acceptances, any fluctuation in the value of the Rand has the potential to significantly impact the replacement value of goods insured, particularly those imported from foreign markets.
"Imported vehicles and other assets that have been purchased overseas over the past year can cost as much as 30% more to replace now. This directly impacts the replacement value of items in the event of loss or damage, with the cost of replacing the item often being substantially higher."
To illustrate this, Fourie uses the example of a recent valuation of a Ferrari 458 Italia. "In 2013, the value for the vehicle was R3.8million and in 2014 this had escalated to over R4.3 million."
She notes that whilst the frequency of claims has remained relatively stable, MUA has seen a marked increase in the total cost of claims, across both motor and home claims.
The depreciation of the Rand impacts on the cost of motor vehicle repairs as a result of a higher cost of motor vehicle spare parts. When it comes to motor vehicle parts that are imported, the cost to repair damage to a car has increased dramatically compared with a year ago.
Fourie says that it is important during periods of market volatility for consumers to conduct regular valuations on insured goods to ensure that items can be replaced at their current value. "For high value items in particular, this should be done on a quarterly basis and on a more regular basis when there are major fluctuations in the Rand. 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 to look at the replacement cost of expensive, imported goods in the home if there has been a sustained period of Rand strength or weakness."
She says that it is also vital to make sure jewellery is adequately insured for its replacement value. "In the case of antique jewellery and other rare items it is not always possible to actually replace the item, particularly with period jewellery. Consumers 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, taking into account the Rand to USD rate and the Gold price in USD at the time of valuation."
Apart from motor vehicles and jewellery, consumers should also make sure that any items that could be impacted by fluctuations in the exchange rate are also taken into account when updating insurance policies. "Art, designer clothing, footwear and bags and luggage are most often affected by changes in the Rand value and this should be considered when re-evaluations are done," she adds.
"People who own items that are not bought locally, should keep track of currency fluctuations and make sure they contact their broker regularly to update their valuations. It is also advisable to keep all slips as proof of payment and make sure these have been declared at customs, otherwise the claims paid out won't match the value of the item or could even be repudiated altogether," concludes Fourie.
