Don’t let rand volatility leave you or your clients exposedTuesday, March 8, 2016
The rand is extremely volatile at present. Over the past four months (beginning 15 October 2015) it has fallen 21% against the US dollar. The speed and extent of the decline holds serious consequence for insurers, insurance brokers and their clients.
From an insurer perspective claims pay-outs increase significantly due to the higher cost of imported goods.
In today’s CIB Newsflash we remind you of your duty to ensure that your clients are correctly insured for the R15-plus to the dollar environment. Remember – a weak rand could result in the sums insured across a wide range of risks and policy types being insufficient. The current situation creates a great opportunity for you to proactively engage with your clients on their insurance portfolios.
You should use this opportunity to get in touch with both your personal lines clients, who may have experienced sharp increases in the replacement value of their household contents, and your commercial clients whose trading stock and specialised machinery values will have increased too.
Even though it is your client’s responsibility to insure their assets for the correct value, it is the broker’s duty to make sure that they calculate this value correctly. This applies not only at policy inception but for as long as you are the appointed broker. You should also inform your clients of the danger of being underinsured and, where necessary, suggest that an expert be brought in to carry out valuations.
The replacement value of all insured items must be correctly stated or your client risks having the law of average applied when they make a claim. Let’s assume that your client’s household contents are insured for R500 000 but are actually worth R600 000. In this example your client would be underinsured by 20% and – in the event of a claim for loss or damage to these contents – may only receive a pay-out of 80c in the rand.
This is where the value of good advice comes to the fore because a well-advised client will be correctly insured. If you are aware of your client’s needs and make sure that your advice reflects these needs then there should be no reason for issues at claims stage.
A final word: Use this opportunity to inform your clients of the valuation risk linked to a weaker currency and obtain the necessary instruction from them to amend their sums insured accordingly. A well-advised client is a happy client.