Growth in luxury brands in SA calls for specialised insurance

According to London-based Euromonitor, Africa’s fast-growing emerging markets provide great potential for purveyors of luxury goods. During a webinar held in early May, the company said that South Africa is an important market for luxury goods with its large population of high-income earners. With 60% of Africa’s millionaires based in South Africa, owners of luxury goods may be at an increased risk of underinsurance or even be unable to replace items with the same brand.

This is according to Christelle Fourie, Managing Director of MUA Insurance Acceptances, who says consumers pay a premium for the bespoke design of their luxury brand items and expect them to be properly replaced should something become damaged, lost or stolen. “However, many general insurance providers do not factor in the premium that is paid for designer brands into their claims settlement approach.”

This is most often seen when it comes to replacing designer jewellery brands, says Fourie. “For example, if a consumer loses a pair of Jenna Clifford diamond earrings, they will naturally want them replaced with a similar Jenna Clifford design. However, some generalist insurers often have their preferred suppliers and will insist on the insured replacing the item where it can be done for the lowest price, whereas a specialist insurer will replace the earrings with the clients preferred designer.”

She adds that this is a result of most insurance contracts giving the insurer the option to choose whether they will repair, replace or pay out cash. “Most insurers will choose the option that affords them the lowest settlement amount. At MUA, we believe replacing a Louis Vuitton handbag with an unbranded leather handbag is not reinstatement although in the strictest sense of the word it may be seen as that.”

In the same vein, a homeowner who has international designer furniture, such as an Italian De Padovo dining room suite, in their home which is subsequently damaged by a geyser bursting in the home, will not be satisfied to replace this suite with a mainstream furniture brand. “This is where the benefits of a specialist insurer who understands the preferences of the client come into play.”

She says another important factor for owners of luxury items to bear in mind is taking the exchange rate into account when insuring the items. “Owners can find that the value the item was insured for five years ago simply does not allow them to replace the same item now due the fluctuating exchange rates. For example, if someone purchased a diamond ring in 2007 valued at R65 000, the current replacement cost of the ring could be as much as R120 000 due to fluctuations in the price of gold and other precious metals, so it must therefore be insured for this higher amount in case of loss, theft or damage.”

To counteract this risk of underinsurance owners should conduct regular valuations of high value items and provide this updated value (with a copy of the certificate) to the insurance provider, says Fourie. “If the insured value of the item is not increased to its current value, then not only will the owner be underinsured but some insurance companies may also impose penalties for invalid valuations.”

Those consumers who purchase luxury items overseas to bring them back home must also ensure they declare the item at customs and keep a record of the declaration as proof, says Fourie. “This is a requirement of the insurance policy, so the owner faces the risk of a claim rejection should this documentation not be made available.”

“With volatile market conditions affecting the exchange rate it is becoming increasingly imperative that owners of luxury brands provide their insurance company with valid and factual valuations on a regular basis to avoid any problems with claims due to damage, loss or theft. A specialist insurance provider will help to ensure the owner’s luxury brand items have the right cover to replace items overseas, or at local supplier,” concludes Fourie.