Risk lessons learned from the Knysna fires
Mandy Barrett, of insurance brokerage and risk advisors, Aon South Africa.
It’s been three months since the Knysna fires gutted 600 homes, displaced more than 10 000 people and tallied insured damages in excess of R4billion. The aftermath has delivered some very hard lessons in managing risk, not least of which are the importance of professional, qualified advice and the need to review and update insurance covers at least once a year, or more frequently if there is a material change to your insured risks.
“It was reported that more than half of the formal homes affected by the Knysna fires were not insured. In some instances, properties were under-insured for the replacement costs of the buildings and assets at today’s prices, having not revisited the insured sums since inception of their policy. Some who had settled their bonds had neglected to reinstate their buildings insurance after closing their bond accounts,” explains Mandy Barrett, of insurance brokerage and risk advisors, Aon South Africa.
“It is heart-wrenching to hear reports that some people affected by the Knysna fires have been left compromised with inadequate or no insurance cover at all. It points to the need to have a strong relationship with your insurance broker, to meet to review your needs at least every year, and to get as well as follow the advice given when it comes to insuring your most significant financial investment – your home and everything in it. Most of all, it highlights the folly in assuming that worst case scenarios are simply too unlikely to happen,” says Mandy.
A well-conceived insurance plan all starts with a thorough needs analysis and the insights of a qualified broker to help you establish the replacement value of your assets, ensure that your risk is mitigated according to your unique circumstances, and that the right cover is in place to protect your assets. A qualified broker is adept at interrogating the terms, conditions and any exclusions, ensuring that you have a smooth and fair claims experience in your time of crisis.
Professional advice = Smooth claims experience
Aon South Africa processed claims directly related to the Knysna fires worth almost R30million, some of which were outright losses. The majority have already been finalised with a handful in various stages of being fully settled pending finalisation of documentary and logistical requirements. Not a single claim has been rejected. “These statistics highlight the value of a professional needs analysis and how important a broker’s role is in ensuring that the correct cover is in place with the underwriting done at inception of the policy, and then updated at least annually to keep pace with the insured’s changing lifecycle and needs,” says Mandy.
Special interventions made for life-altering losses
The Knysna fires presented a harrowing crisis for many affected people that demanded immediate and emergency attention. “In times of crisis people don’t think rationally and certainly won’t think of how the added benefits of their insurance cover can assist them. Our response had to be above and beyond the norm as we were not only dealing with the financial impact of a client’s loss, but also the tremendous emotional and psychological turmoil that accompanies the loss of a home, security, stability, most treasured memories and fears for the safety of loved ones. Aon stepped in to support, counsel and hand-hold clients during what can only be their most vulnerable moments by proactively making and maintaining contact, and especially to advise them of covers that would be beneficial to them during this time – most significantly was the arrangement of alternative accommodation for affected families, live-in domestic staff and safe lodging for pets as quickly as possible.
“We intervened on behalf of clients with a number of insurers to fast track the claims process, especially where losses were life-altering - our priority was to provide some semblance of stability as quickly as possible by providing quicker turnaround times in client contact, assessor appointments and claims processing. Catastrophic losses and client lifestyle disruptions were prioritised and where necessary, clients were assisted to make use of applicable policy benefits and extensions of cover such as trauma counselling, deployment of security guards, alternative accommodation and so on,” explains Mandy.
Aon also intervened and negotiated with insurers to make interim payments of up to R50k to assist clients with immediate accommodation, food and basic necessities – many people had to make emergency evacuations and were literally left with only the clothes on their backs, and had no home to return to. Claims advocacy teams were deployed on an outbound and proactive basis to support and advise clients with their claims notifications. All Knysna claims were ring-fenced and daily follow ups were made to assessors to ensure accuracy of reserves and to ensure that the claims were diverted for fast tracking where necessary.
Value of professional advice manifests at claims time
In simple terms, an insurance contract is a promise to pay should you be placed in the unenviable position of having to make a claim. Aon’s focus is to remove the uncertainty often associated with making an insurance claim and to simplify and expedite the process. This support becomes increasingly invaluable with more complex claims as is the case with the Knysna fires.
“We focus on ensuring our clients’ insurance programmes are underwritten by carriers with a proven willingness to pay and who live up to the spirit of an insurance contract when claims are contested. At all times we are proactive advocates for our clients focused on securing the fairest possible claims outcome in the least amount of time. Insurance safeguards your valued and hard-earned assets against loss or damage. There is simply no recovering from a catastrophic fire if you lose your entire home and everything in it, and find your insurance cover wanting,” she adds.
Insurance is often seen as a grudge purchase and its one of the reasons why many people fail to pay the necessary attention to what is essentially a life line in times of crisis. What many don’t consider in their insurance planning is that all progress is subject to having today’s assets and achievements secured, so that you can continue to build on them and grow. “One of the most important lessons to come out of this experience is the need to put pro-active measures in place to manage your risk and exposures, to keep your insurance cover current and affordable and to engage the support and advice of a professional broker whose sole focus is the protection of your interests. If you are uncertain about any terms and conditions of your insurance policy, speak to your broker,” concludes Mandy.
Sometimes knowing exactly what you are not covered for is as valuable as knowing what is covered. A broker is adept at assessing gaps in your cover and ensuring that your policy accounts for your unique needs and risk profile and that there are no exclusions or special conditions that could leave you unknowingly compromised – it’s a role and relationship that persists not only at the inception of your policy, but throughout the lifetime of your cover as your needs and lifestyle change.
Aon highlights some of the key take-outs that all homeowners can learn from the Knysna crisis:
• Correctly insure your single biggest investment - Your home is likely to be the biggest financial investment you’ll make, and it’s an important factor in your family’s safety, security and standard of living. Given its significance in your life, it needs to be correctly insured should you suffer a major catastrophe.
• Bond Insurance is not sufficient – bond insurance which is compulsory when you take out a home loan may not be sufficient if it is not reviewed in line with the replacement value of your property, and only keeps pace with standard annual inflationary increases. As a further cautionary, if you have paid off your bond and closed the account that your insurance policy was linked to, make sure you take out new comprehensive insurance cover for the replacement value of the* building.
• Always insure at replacement value - market value is basically what you are likely to get in the open market if you sold your home today. Replacement value is about what it would cost to rebuild your home as it stands at today’s building prices. When it comes to replacement value, if your home was completely gutted, would you want to re-instate your home as it was, or would you be willing to accept something less? Remember also that if your home was completely gutted, you’ll also be liable for all other costs including demolition and professional fees, removal of debris, new architectural plans, and so on.
• Never assume the worst cannot happen - Many people believe that the likelihood of a catastrophic event such as a fire or flood is unlikely, and as a result neglect to properly insure their property.
• Keep your policy up to date - Any alterations or home improvements add to the value of your home. Check that your cover accommodates the additional value of the improvements.
• Household Contents Insurance - You need to ensure that all the moveable assets inside your home are covered. It’s an area where Santam research has shown that some 40% of consumers are underinsured against major losses. Insure the contents of your entire house, not just what you think may be lost or stolen as a result of an insured peril. You may not think you’re at risk for a burglary so neglect to cover all your assets, but a fire is a completely different story.
• Avoid under-insurance - If you are under-insured in the event of a claim, you may be paid out only partially for the loss due to the average formula being applied. Average explained: Let’s say you insure household contents for R250 000 but the replacement value is actually R500 000, you are then effectively 50% under-insured. Should you suffer a loss of R100 000, the insurance company assessor will therefore apply average to your claim and pay only 50% of the claim at R50 000, leaving you out of pocket for the balance. This example highlights the importance of accurately evaluating the value of your contents and ensuring that you are covered correctly. A professional evaluation coordinated through your broker is invaluable here.
• Play your role in managing your risk - Insurance companies are not set out to avoid settling claims. But it is important that you understand the terms of your insurance agreement, which is a contract between you and your insurer and play your role in the risk management.
