How credit downgrade impacts SA insurance sector

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The recent sovereign downgrade of the South African economy to junk status by both Standard and Poor’s (S&P) and Moody’s is unfortunately going to be felt by all South African consumers in one way or another. The short-term insurance industry is not immune to the impact of this downgrade, so it is important to be aware of what to expect

This is according to Nazeer Hoosen,  PPS Short-Term Insurance Chief Executive Officer, who states that the downgrade could potentially result in increased inflation and higher interest rates.

“This will all filter down to the consumer through an increased cost of living. These factors, coupled with a currency value that constantly fluctuates, means that there will be an increased cost of imports.”

“With the majority of motor vehicle parts being imported, this is set to have a huge impact on the cost to repair motor vehicles. This will have a direct impact on the short-term insurance industry which has to pay for these repairs from the insurance premiums collected. Unfortunately this may be filtered through to policyholders by possible premium increases in the future,” says Hoosen.

Looking at the impact from a homeowner perspective, those homeowners with imported items, such as kitchen equipment or other home décor that is imported, will probably have to pay an increased amount to repair or replace these items should they become damaged, lost or stolen, he explains.

“It is important to bear this in mind and make sure that proper valuations on belongings are conducted so that in the event of a claim they are not left underinsured.”

While all this sounds like doom and gloom, Hoosen advises that it is important not to cancel short-term insurance cover in order to save money because this increases your risk exposure and could cost you more in the long run.

“When times are uncertain from an economic perspective, many people try cut down on costs and some may view insurance as a possible area to cut down.”

“Without insurance cover, individuals could be financially, and even emotionally, devastated beyond recovery. This type of financial distress is not worth the saving of a monthly insurance premium payment,” he says

He believes that people should instead look for ways to reduce premiums by becoming a better insurance risk.

“For example, if your car was previously parked overnight unprotected in the street and now it is parked in a locked garage or behind a secure gate, the vehicle will be considered as a lower risk for theft and damage and therefore the insured could possibly pay a reduced premium. When it comes to home insurance, should the homeowner install alarm systems and/ or CCTV cameras on the property, they could possibly lower their monthly premium as the house is now at a reduced risk for house burglaries and robberies”.

Before making any rash decisions, speak to your broker or your advisor, to assist you in finding the solution that fits, concludes Hoosen.

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Bontle Moeng is the Founder and Managing Director of BizNis Africa. Moeng has spent 16 years working in the digital and online media industry across Africa. She applied her trade at True Love magazine prior to discovering her passion for Investment news in key sectors across Africa. Moeng previously worked for ITWeb, Starfish Mobile Technologies, ITNewsAfrica, AVATAR Agency, eNitiate, Global Interface Consulting and Havas Johannesburg. Her primary focus is to provide solid and valuable content on investment opportunities for the ICT, Energy and Mining sectors across Africa. In addition, the online news publication assists global companies to expand their presence in Africa. Email: news@biznisafrica.co.za

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