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Personal Lines Insurance
Sunday, October 1, 2006
Prosperity trap

The short-term insurance adviser has a key educational role to play as consumers confront what amounts to a ‘prosperity trap’. In the process, substantial new business opportunities may emerge.

Mutual & Federal warns policyholders against possible lack of cover through gaps in their all risk provisions, or underinsurance concerning their household insurance indemnity values.
The company believes several years of low inflation have encouraged a feeling that lower prices have reduced the need to review policy values. Yet rising wages and economic growth have encouraged families to add to their possessions and invest in their properties. The result should be more, not less insurance.

All risks

The prosperity challenge is crystallised by all risk cover for listed valuables that are worn, carried or used outside the home. Expensive jewellery belongs on the list – especially at a time when rising gold and diamond exchange prices affect replacement costs. Regrettably, consumers sometimes neglect to specify new purchases or update the insured sum in respect of existing assets.
Merrick Oeschger, Executive General Manager: Personal says, “One indicator of consumer-led growth should be additions or revisions to the specified items list in standard householder cover. However, this is not happening to anything like the extent one would expect.
“As brokers know, items lost or stolen outside of the home are not covered under a policy’s household content section.” Instead they must be covered under the ‘all risks’ section. Furthermore, certain items such as cellphones are not even covered under general all risks, but have to be specified in terms of value, description and any identification number or reference.
Gifts such as jewellery and watches or new purchases such as laptops and cellphones should certainly be specified. Unfortunately, consumers sometimes neglect to revisit the listed items section of the policy and such items may be left uncovered, even if their value was included in the general unspecified all risks section.
Comments Mr Oeschger, “This creates an opportunity for intermediaries to fulfill an educational role, deepen relationships with clients and write new business.”
Rising income levels are sometimes reflected in the purchase of designer-label cloths and high fashion items such as handbags from exclusive stores. Again, ensure the policy’s specified items list is updated to provide cover.
“Expensive handbags and briefcases are often targeted in a smash-and-grab attack on an upmarket vehicle. It is only prudent to ensure you are covered for such a loss.”

Underinsurance

The prosperity trap can also lead to general underinsurance of your household contents. This again warrants a timely consumer alert by proactive advisers.
Lower interest rates, access to credit, stable prices and lower inflation can all influence a family’s propensity to purchase or to invest in their property.
This may be reflected in an addition to the home or the purchase of new furniture, modern appliances and desirable items like home entertainment centres.
At times of economic growth, marketers also put pressure on materialists to upgrade their existing possessions with more modern and sophisticated items.
These factors tend to push up the ‘sum insured’ in typical household cover. However, if the policyholder neglects to update his insured values, premiums will fail to reflect replacement costs. This will lead to the possibility that any claim for a subsequent loss may not be met in full.
Brokers are well placed to point out risks such as these.
Mr Oeschger also notes, “When inflation was in double-digits, prudent policyholders realised they would have to adjust the replacement value of insured items periodically. Now that inflation is better controlled, they may feel there is less need for a regular review.
“However, this is not the case. Low inflation and steady prices have encourage consumers to add to their personal possessions. As they make new purchases so the value of the home contents increases, leaving the consumer vulnerable to under-insurance.
“The best defence to this insidious risk is an on-going relationship with a knowledgeable adviser.”
 

Copyright © Insurance Times and Investments® Vol:19.5 1st October, 2006
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