Insurance: You get what you pay for

You get what you pay for in insurance

Peter Atkinson, National Technical Portfolio Manager at the Financial Intermediaries Association of Southern Africa (FIA)

Beware of the fine print in insurance polices

Consumers should be wary of signing up for what are perceived to be cheaper insurance products without first reading the fine print, as they can actually prove far more costly in the long run.

According to a recent statement by the Ombudsman for Short-term Insurance, consumers should satisfy themselves, prior to inception of any contract, that the policy being offered covers their specific risk needs and not be “fooled” into purchasing an insurance product purely because it offers a lower premium.

In particular, the Ombud referred to a relatively new motor policy, noting that some insurers have introduced forms of insurance cover at what is said to be substantially reduced premiums, supposedly in an endeavour to reduce the number of uninsured vehicles on our roads. He pointed out that such products may not offer much protection to consumers, however, and may actually lead consumers into a false sense of security.

It is critical that consumers analyse the cover provided by such products very carefully and critically assess whether the cover being provided is relevant to their own circumstances and whether they are able to carry the potential consequences of excluded risks themselves.

Insurance premiums are calculated to compensate the insurer for taking on a certain amount of risk that is being transferred from the insured. Therefore, a lower premium often means that the degree of risk being transferred is correspondingly low. Unfortunately, those seeking to cut insurance premiums are typically the ones who can least afford to carry any of the risk themselves.

For example, it is important to work out how the insurer will determine the value of the vehicle at the time of a claim. There can be a significant difference between the “trade value” and the “retail value” of a motor vehicle, which may leave a consumer with a large shortfall in the event of total loss, especially if their cover only provides a percentage of the full trade value in an effort to save on premiums.

The “trade value” would represent the value that a dealer would offer as a trade-in on a motor vehicle and should be distinguished from either the market value of the vehicle, or the retail value, which would represent the value for which a vehicle would be sold by a motor vehicle dealer to an end purchaser. However, some plans do base the cover on “market” value

In what appears to be a new trend, however, some cover now extends only in the event of a complete loss of the vehicle through write off occasioned by an accident or through theft or hi-jacking. No cover is offered to a consumer for damage to the vehicle itself where the vehicle is not assessed as a write-off based, for example, on repair costs being estimated to be greater than 70% or 80% of the vehicle’s current value.

While one may be tempted to simply disregard this type of “limited” product (if one is able to discern it as such), consumers also need to be able to choose a product that suits their particular needs from the range on offer and, provided they are fully informed as to the pros and cons of the cover, to opt for what is perceived to be the best solution.

It is here that the independent intermediary can be invaluable in ensuring that the options are fully understood and that the correct decision is made.

Coutesy: FIA

Get your generators ready for winter

I guess we should make sure the generators are serviced, and ready to bail us out again in winter...

via Fin24:

Johannesburg - Eskom cannot guarantee that there will be no outages during the winter months as energy usage nears that of pre-recession levels experienced in 2007, The Times reported on Tuesday.

"We have resolved to avoid (outages), but that resolve will be tested," the power supplier's spokeswoman Hilary Joffe was quoted saying.

"I am not going to give you a guarantee that (load shedding) is going to happen, but I'm also not going to give you a guarantee that it's not.

"That's the best we can give you. It's not going to be easy," she said.

Eskom on Friday announced its goal of keeping power available this winter and avoiding rotational load shedding.

"But the system is going to be very tight for the next two years," Joffe said.

After studying weather and power usage trends, Eskom reported that 14 critical periods were expected before the end of winter. 

How the Tsunami affects the SA insurance market

Japan is some 13'500 kms away from South Africa, as the crow flies.  But that distance is negligible, when it becomes clear that we, in South Africa, are now starting to experience shortages of motor vehicle parts, following the massive earthquake and tsunami which destroyed large parts of Japan last month.

Here is a list of vehicles that insurers are currently reporting issues with:

Lexus South Africa - Alternate suppliers are available.

Toyota South Africa - Only Toyota Quantum Minibuses will be affected.

Toyota Hino - Isolated problems may occur on lesser populated models in one to two months time.

Honda South Africa - Parts are available from the European hub for at least six weeks. Other suppliers are also available.

Nissan South Africa - Isolated cases of shortage may occur for lesser populated vehicles.

Subaru South Africa - Problems are being experienced but parts are being sourced from the USA and UK.

Mitsubishi - Problems are being experienced. Expect delays.

General Motors South Africa - Problems will be experienced. Expect delays, especially on Isuzu parts.

Suzuki - Problems are being experienced as the Plant was washed away.

Daihatsu - Production of aftermarket parts resumed on 17 March 2011.  Production of parts for overseas production resumed on 21 March 2011.

Mazda - Operations were suspended at Mazda's Hiroshima and Hofu Plants but temporary production was resumed on 22 March 2011. Both Plants will focus on manufacturing replacement parts, parts for overseas production and vehicles utilising "in-process" inventories.

We really do live in a global village. An earthquake on the other side of the world leaves us with a shortage of spare parts. Which results in a delay in repair time. Which results in higher costs, for insurers, and ultimately, for you and me.

But, I guess there's not much we can do about it... except try not to have an accident if you drive one of those models.