Rich South Africans at risk of underinsurance

Dawie Loots, CEO of MUA Insurance Acceptances.

While the concept of underinsurance is usually associated with low income earners, there are an increasing number of risks faced by wealthier South Africans that they are failing to insure for, resulting in potential losses running into hundreds of thousands of Rands.

That is the view of Dawie Loots, Chief Executive Officer (CEO) of MUA Insurance Acceptances, who says that one of the biggest risks for wealthy South Africans comes in the form of technology adoption. “More and more clients are introducing technology into their homes on a larger scale than ever before. Home automation systems are becoming increasingly common and offer clients the convenience of controlling their homes literally from anywhere in the world. Connected devices - the so called “internet of things” - include air conditioning, alarm systems, water heating, lighting, surveillance, to name but a few.

“These devices can all be connected via the internet and give the client full control of their properties even when they are not there. These devices are very advanced, usually quite expensive and unfortunately prone to everyday perils like lightning and power surges. Having these systems replaced or repaired can quickly run into hundreds of thousands of Rands. Unfortunately, many owners of these devices overlook the potential risks and fail to adequately cover these items.”

Loots adds that the purchase of luxury goods is another area of concern around underinsurance of wealthier South Africans. “We are noticing HNWIs continue to add to their existing portfolios of collections, be they classic or exotic cars, watercraft, art, jewellery or fashion. These items are often purchased overseas and it is not always a straightforward exercise to ensure that the correct insured value is applied. It is important to bear in mind the replacement cost of such items given the fact that the Rand is a volatile currency.”

According to Loots, many wealthy South Africans are also facing increased risks from natural disasters, including drought, storms and fires. “We saw quite a few claims from the recent fires in Knysna, some of which were from clients living on exclusive security estates. Due to the very high standard of finishes in these homes, the cost of repairing damage caused by the fires are extremely high compared to an ‘average’ property. Any underinsurance in these circumstances can be extremely costly for homeowners.”

The increased frequency of use of exotic cars is another trend which could result in underinsurance issues, Loots adds. “We are seeing many clients choosing to drive their exotic vehicles on a more regular basis than what we’ve seen before. This becomes a problem in the event of a claim if the motor vehicle is only covered for occasional use but actually used on a more regular basis.”

Loots says many of these risks are not obvious or straightforward. “As such, HNWIs require insurance advice of a very high standard. They expect brokers to understand their lifestyles and the risks associated with the items they purchase.”

As much as technology has a role to play in making this possible, the value of relationships can never be underestimated in order to ensure they have insurance cover that is tailored to their individual requirements, Loots says.

“A good broker offers professional advice that’s been gained over years of first-hand experience, as well as a network of different service providers and insurers that will have the right product for a specific client. A broker can also help to ease the administrative burden of filing a claim and will offer expert guidance through the whole process. Finally, a broker can assist by simplifying some of the insurance jargon contained in insurance policies and in that way ensure that their client is appropriately covered.”

Loots concludes that while brokers are important, it is also critical that people take personal responsibility to ensure they are properly covered. “Many HNWIs spend a great amount of time creating wealth. It is important that they spend enough time and effort on protecting it. This includes reviewing their insurance policy at least annually, but also after every significant purchase, ensuring that the insurance policy is updated accordingly.”