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Risk Management
Wednesday, October 30, 2013 - 10:20
Premiums to rise

While increases are on the cards from insurers, secret lies in risk management and regular analysis of your insurance portfolio

The weakening rand, an increase in the number of natural disasters locally such as flooding and violent hail storms and the increase in vehicle accidents are key drivers behind announcements by leading insurers that premiums are set to increase by as much as 15%.
In the context of other pressures on the consumer’s wallet, it’s not great news, however it has been a number of years since leading insurers implemented general premium increases and in light of current market conditions, increases are inevitable.
But risk advisors and insurance brokerage Aon says that even in the current environment, the secret lies in risk managing your insurance portfolio. A well-conceived insurance program is achieved by consulting with a professional broker who can assess your unique needs, risk profile and budget, and tailor-make an insurance offering that gives you peace of mind knowing that your hard earned assets are safeguarded in the event of a loss and, most importantly, that you’re paying the right price for the right amount of cover.
“With the increased number of motor vehicles on the road and deteriorating road conditions, motorists are more likely to have an accident than in the past. For insurers, repair costs have increased significantly due to the depreciating Rand which impacts the cost of spare parts. In addition, due to the sophistication in motor vehicle safety and increased motor vehicle technology, the price to replace parts is resulting in a substantial increase in repair costs. Even minor collisions can rack up a hefty repair bill.  Despite the fact that a vehicle is a depreciating asset, the reality is that the cost of repairing a vehicle this year will be substantially more than the same time last year,” explains Mandy Barrett, Marketing and Sales Manager: Personal Lines at Aon South Africa.
“For many people, insurance is often seen as a grudge purchase, so often it’s the first thing to get chopped when under financial pressure. However, the key reason you take out insurance is to serve as a safe guard of your assets and transfer financial risk from yourself to an entity that is entirely geared to handle the potentially significant financial liabilities that come from an insurable loss. It’s human nature to believe that we won’t ever face a worst case scenario, but if your home burned down to the ground, would you have enough money in your savings to rebuild it, replace all your household contents such as furniture, appliances and clothes and maintain your standard of living? Would you recover if your financed vehicle was written off in an accident and be able to cover your outstanding debt, plus replace your vehicle? It’s highly unlikely, and that’s why people take out insurance policies.
“What most people don’t think about is that planning and saving for the future depends heavily on having a well-managed insurance plan in place that meets your basic protection needs right now, and sees to it that your assets are protected and secured for the future,” explains Mandy.
One of the most important factors in managing your own premium levels is to improve your risk levels through effective risk management and take steps to prevent or minimise losses. For example, insurers such as Santam have reported a worrying increase in claims caused by poor maintenance on buildings. In fact more than 70% of their fire claims are caused by electrical faults due to poor installations by unqualified individuals and lack of maintenance.
“The drive to save costs in the current environment is totally understandable. Insurance is one area where consumers often believe they can save. But the emphasis must be on right-sizing your covers and seeking economies where they are to be found, and to avoid under-insuring.
“If you’re shopping around as a result of premium increases, remember to approach your risk management for your personal insurance in much the same way as businesses examine their insurance portfolios, seeking ways of economising but without exposing yourself to significant financial loss in the event of a claim. Essentially it’s about examining your insurance portfolio on a proper needs analysis basis and tweaking it accordingly,” advises Mandy.
Aon offers the following guidance and tips when reviewing your insurance covers:
•  Accept an increased excess on your policy that you can afford - the first portion of a claim you are obliged to pay - to reduce your premiums.
•   Accept a risk in its entirety, in other words not to insure at all, an item which is readily replaceable or stands very little likelihood of being damaged, lost or stolen. For example, a family heirloom which, although having great sentimental value, is irreplaceable.
•  Consolidate your homeowners, household contents and motor cover with one insurer rather than paying separately for covers with different insurers – not only could it reduce your premium, but you will also save on debit order fees and policy administration charges by consolidating.
•  Motor claims in the South African insurance scenario make up some 60% of all short term claims. Make sure that you put the security measures in place that insurers require. Also, make sure you maintain your vehicle in good working order, including tyres, and that you declare the regular driver.  Never be tempted to declare your vehicle as used for personal, private use to save on premiums, when in fact you are using it for business use. This will be deemed as non-disclosure and could leave you with a rejected claim or less than expected claim settlement.
•  Remember to tell your broker about any security upgrades which could reduce your cover. You may have installed a good alarm system or upgraded your security generally, or fitted a vehicle tracking system to your car. You could receive discounts on your premium from underwriters who recognise that claims are less likely to arise from a policy holder adequately equipped in this respect.
•  Your property itself has to be accurately insured for replacement cost and in this respect don’t fall into the trap of believing you can lower your cover simply because the market value of your home has been reduced by current market forces. The major consideration is to avoid the application of the ‘average’ formula where, if you are under-insured, the insurer will reduce the amount of the claim by the amount of under-insurance before paying out on the remainder of the cover. It’s entirely possible that settlements could be as little as 50% of the claim if you are underinsured. The same applies to contents, so insure the contents of your entire house, not just what you think may be stolen in a burglary.
• It’s important to have your portfolio analysed professionally at least once a year and here a broker plays an invaluable role in assisting you in drawing up an inventory which you should review on a regular basis. Remember your individual circumstances can influence the rates you are charged.
• Finally, and probably most importantly, one needs to consider whether you can really afford to claim for causes that could have been avoided in the first place. Claiming is likely to have an impact on your insurance and loss history and any no-claim bonus that you may have. It also comes at a cost to you in the form of excesses and premium increases which can be substantial, especially where a client has repeat and frequent claims. In some instances where clients repeatedly claim for a certain incident, some insurers may even exclude this claims cause from the policy cover or provide notice of cancellation entirely. In light of this, it’s worth the time and effort to put pro-active measures in place to manage your risk and exposure, and keep your insurance cover affordable for those mishaps that simply cannot be avoided.
“By working with a professional broker, you’ll benefit from sound risk management advice that will help you to reduce the incidence of losses and thereby benefit from a segmented rating where low risk clients enjoy lower premium levels than those with higher risks. While premium increases may be unavoidable in some instances, they can be managed,” concludes Mandy.

Copyright © Insurance Times and Investments® Vol:26.8 1st August, 2013
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