How climate change impacts your most valuable possessions

Climate change has a profound impact on insurance and how we protect our valuables and assets, says Santam, South Africa’s leading short-term insurer. Economists at Swiss Re believe natural disasters that occurred in the first six months of this year have cost the global insurance sector more than $60 billion. In fact, 2011 has been the second costliest year in the history of the insurance industry.

It has become apparent, over the last year, that we are living in a time of unprecedented change as environmental, as well as social and governance (ESG) factors dynamically interact with each other to result in the systemic risks we face today.

“Climate change, as one of these systemic risks, is causing an increase in the intensity and frequency of natural disasters around the globe, and this has a knock-on effect on homes, vehicles and other insurable assets,” says Shehnaz Somers, Santam’s Head of Personal Lines Underwriting.

The damages caused by these natural disasters are often exacerbated by other unsustainable trends such as ecosystem degradation, unplanned urbanisation and poor land use management.

So how does this affect you and your most valuable possessions?

“You may live in an area that is seeing an increase in flooding, ocean surges or hail storms. Or, you may live in an area that has experienced the kind of urbanisation that has not taken the natural environment into account. Where you live, in relation to the occurrence of increased natural disasters, weather variations and poor management of development, all affect your insurance cover,” says Somers.

Sometimes it is difficult to choose where you are going to live. Financial or lifestyle circumstances often determine your location, or you may even have inherited a home. The point is, in a situation where you have no control over your location, you still have the power to secure your assets and valuables by ensuring that your insurance cover is tailored to address your specific risks.

If you are seeing more damage to your surrounding environment due to any of these factors, there are steps that you could take to ensure you are appropriately and sufficiently covered.

Update your policy:

According to Santam, homeowners often forget to update their policies.

“When you bought your home, you took out an insurance policy to cover the house as well as your household contents. Was that the last time you thought about your insurance coverage, and more importantly, do you remember what you are covered for? It is critically important to update your policy annually, to ensure that you are fully covered, that any new items are accounted for, and to let your insurer know what improvements you have made to protect your home against unforeseen weather conditions,” says Somers.

Brokers can help you assess your current risk and advise you appropriately:

And you don’t have to do all the work yourself, says Santam. Brokers can be a tremendous source of information, advice and can assist you when you need to update your inventory or provide your insurer with a new residential address.

“The structural part of the policy generally covers damage from fire and smoke, lightning, wind and hail storms, vehicles that are damaged on the property, explosions and falling objects. The policy should also include coverage for theft, vandalism, sudden water damage from a faulty plumbing system or appliance, glass breakage, and unexpected damage of heating or cooling systems.”

She says that a comprehensive home owner's policy should cover your home, any structure attached to it such as a porch or garage and any unattached buildings on your property that are not used for business or rented to others.

“It is also important to remember that damage caused by natural disasters such as flooding and hurricanes are not automatically covered by your homeowner's insurance policy. It is important to bear this in mind when insuring your home. Again, take the time to talk to your broker, who can provide you with information about specific coverage around natural disasters,” says Somers.

Properly evaluate your valuables with your broker:

The second aspect to your policy is the personal property portion that protects valuables like clothing and furniture. If your home contents are damaged in a flood or hurricane, the amount of insurance on your personal property policy is equal to a percentage of the amount of insurance of your home (usually 55 percent).

However, it is important that you know that special limits may apply to certain types of personal property, such as money bank notes and rare coins, securities, stamp collections, jewellery, firearms, silverware/goldware, rugs, tapestries and wall hangings. Higher limits on most of these items are available through upgrades to your policy or by taking out a separate policy for the items.

“We often find that customers are underinsured, and this is another area where a broker is able to help you. Spend some time with your broker to ensure that your policy is written for current replacement costs,” says Somers.

She explains that the replacement cost coverage on your personal property means that the insurer will pay to repair or replace personal property that is covered at the current value. For example, if you bought an item several years ago for R100 and it needs to be replaced, your insurer would cover you for the current cost of replacement.

Inflation coverage automatically increases the value of your insurance coverage on your home and personal property, as inflation changes the cost of replacing your property. The changes are based on the movement of an inflation index and are reflected in the premium at each renewal.

But how do you know if you have too little or too much insurance?

“A really good tip is to start with a home inventory to help you assess your insurance needs. First you need to know how much it would cost to rebuild your house today on your existing lot. Use your broker to find out what the market rate is per square metre should you need to rebuild your house. Multiply that times the square metreage of your house and the total is equal to the insurance coverage you should have,” says Somers.

Santam has developed free online calculators for brokers and clients to use to determine the correct value at which to insure their buildings, vehicles and house contents.

“For your belongings inventory, list every item in your home and garage, when you bought it, its original cost and its estimated value. It also helps to keep photographs of your possessions in a fireproof safe at home or a safety deposit box. Marking your items with a personal identification number, such as the last four digits of your ID number (don't use your full ID number as that will make you vulnerable to identity theft) will make reclaiming any stolen items easier.

“If you ever need to claim, the inventory will make the process easier for you and will ensure that you are compensated for everything,” says Somers.

A study done by the US University of Pennsylvania reveals that 25 of the most costly insured global catastrophes between 1970 and 2008 occurred after 1987. Two thirds have occurred since 2001. Another survey from the US found that, out of 1100 adults living along the Atlantic and Gulf coasts, only 17 percent had insured their homes or valuables.

“Although South Africa has not experienced the same level of extreme natural disasters, we are experiencing more damage from floods, fires and tornados. I urge all South Africans that value their financial livelihood to protect themselves appropriately,” concludes Somers.