The sharp decline in the Rand against many major currencies, paired with the frequency of severe claims over the past year, is expected to have a significant impact on the personal lines short-term insurance industry, resulting in increased insurance premiums.

This is according to Christelle Fourie, Managing Director of MUA Insurance Acceptances, who says such challenging market conditions have already resulted in some insurers cancelling unprofitable books of business. “We have further noted that a number of leading insurers have implemented general premium increases in order to return to profitability. As a result, it is important for South African consumers to start factoring the possibility of a potential increase into their insurance premiums in the near future, including their home, contents and car policies.”

She notes that a near 20% drop in the strength of the Rand in 2013 alone has also impacted on the cost of motor vehicle repairs as a result of the higher cost of car spare parts. “The cost of repairs is one of the biggest problems facing the sustainability of the South African motor industry at the moment. When it comes to motor vehicle parts that are imported, the cost to repair damage to a car has increased dramatically compared with a year ago. In some exceptional cases we’ve seen an increase as high as 40% in the cost of repairs for certain vehicle makes and models. While the frequency of claims has remained relatively stable, we have seen a marked increase in the total cost of claim. This is across motor and home claims.”

Fourie says the insurance industry has also been impacted by a marked increase in claims related to natural disasters, which has affected profitability. “We have seen an increase in the frequency of significant disasters in the past year alone. For example, the hail storms in Johannesburg, flooding in Limpopo and the Vaal, as well as the fires in St Francis and Hermanus. The insurance industry often takes a severe knock following such large-scale disasters due to the volume and severity of resultant claims.”

She says in times of currency volatility it is also important for consumers to conduct regular valuations on their insured goods to ensure that they will be in a position to adequately replace such items, particularly any purchased overseas. “While it may not be practical for clients to re-value their entire contents every time the Rand dips or rises, it is a good idea if there has been a sustained period of Rand strength or weakness to look at the replacement cost of expensive goods in the home that have been imported.”

A good example of the importance of conducting regular valuations is the kitchen, says Fourie. “An imported Miele kitchen can cost as much as R500 000 to install. A fluctuation in the exchange rate on half a million rand can end up being a huge difference when it comes to replacing that kitchen.”

She says people who own many items that are not bought locally, should keep track of currency fluctuations and make sure they contact their broker regularly to update their valuations. “It is also advisable to keep all slips as proof of payment and make sure these have been declared at customs, otherwise the claims may also not be entertained.”

“With consumers likely to face a tough time in the months ahead, it is vital that everybody takes the impact of rising insurance costs seriously. In this way, they can ensure they are fully prepared when the inevitable occurs but also ensure there is no temptation to cut back when it becomes a reality,” concludes Fourie.

This article is based on a press release issued by MUA Insurance.