FNB Insurance Brokers warns on risks of self-insurance for seniors

South Africa’s low interest rate climate is putting the squeeze on some senior citizens on fixed incomes who are increasingly tempted to economise on household costs by cutting or cancelling their short-term insurance – sometimes with disastrous results.

The warning on the dangers of senior non- or self-insurance was sent out today  by FNB Insurance Brokers, the FirstRand group’s short-term insurance broking specialists.

FNBIB General Manager, Marketing Debbie Barret said low interest rates for more than two years had severely affected some pensioners who were dependent on fixed interest investments for retirement income.

“They are desperate to reduce monthly household costs,” Barret added, “and are cutting non-essentials. Unfortunately, they sometimes cut back their monthly insurance premiums, too. The consequences can be disastrous.

“There is already anecdotal evidence of old people who suffer severe damage to their houses and major losses on their household contents and have no hope of paying for proper repair or replacing their possessions.

“The real danger is that older people making these false economies may face huge claims to cover their third-party or personal liability exposure. They could be ruined.”

FNBIB believes there is growing need for market education on the pitfalls of self-insurance and non-insurance.

“We must challenge the ‘it-can-never-happen-to-me’ mindset,” said Barret.

“If these contingencies are never going to happen, why do underwriters typically pay out 65c or 70c per rand of premiums to meet claims? These events do happen.”

He said four basic educational points should be stressed:

1. Self-insurance is practised by some individuals, but is most appropriate for high net worth individuals who create a cash reserve and have the discipline to keep this contingency fund intact. Self-insurance for the average consumer is apt to degenerate over time into non-insurance, leaving the individual exposed to dire financial risk.
2. In cases where individuals believe they can make a degree of self-insurance work, they should adopt a prudent and selective approach. Being uncovered for third-party and personal liability risks can be disastrous. Self-insurance in some risk categories can expose the family to multi-million-rand claims. Consumers should seek the advise of short-term insurance professionals on these issues.
3. The experience and prudent lifestyles of some older people can result in lower risk in certain instances. This is reflected in some pricing structures. For example, some products offer special rates for older people or those living in a more secure environment. Pensioners should contact their broker to ensure they derive maximum advantage from cost-efficient provisions such as these.
4. Regular reviews should be carried out with a broker to ensure an individual’s short-term portfolio remains appropriate to lifestyle needs. After downsizing, certain possessions may be removed from all-risk cover, for instance. As a motor vehicle ages, its market-related replacement value usually falls. By adjusting these values on the policy, it is often possible to reduce the premium. Explore options such as these in consultation with a reputable broker.

Barret noted: “It is true that some disciplined and prudent older people are less exposed to certain risks than younger people. But older people must remember that in some respects they are more not less vulnerable.

“For example, a younger person earning a salary may have the earning power to replace losses and repair damage. A pensioner reliant on a fixed monthly income often lacks the financial resources to make good a major loss.

“This is one more reason for thinking twice about any drastic cuts in your insurance provisions. This month’s cash saving can be next month’s financial disaster.”