Risk & Insurance

Under Insurance Risks

The protracted devaluation of the rand over the last two years has left many insured’s with inadequate cover. The effect on claims payments can be catastrophic for clients already under pressure from an unforgiving economic climate. By Paul Halley.

Restaurants, hotels and guesthouses now face an ever increasing possibility of receiving limited indemnity due to underinsurance and average on insurance claims. Together with real inflation close to double digits and food cost inflation rising meaningfully, re-engineered menus and revised room rates can only go half way in counteracting the trend. The reality is the full increase in costs cannot be passed on to the consumer, patron and tourist if the operator is to remain sustainable and competitive.

Whether it be the cost of imported mattresses and bedding material, labour rates in the construction or automotive sector, imported coffee machines or locally supplied meats and poultry, the increase in these prices is now set to far exceed any automatic sums insured increases of the last two years. Despite “official” inflation sitting around 7% and rising real economy inflation is linked to the currency.

In recent trends the effect of average is becoming more and more prevalent and more significant too. In times of economic hardship even a medium size loss can result in business failure due to the uninsured portion (average) of the loss. The inset table shows some examples of total claims and settlement percentages due to average from three recent claims.


Given recent trends in accountability out of the ombuds office and indeed the courts, insurers and brokers can no longer simply get clients to sign off on underinsurance. We also believe that this effort can be a real value proposition for the intermediated model and will be initiating opportunities to improve this area of our portfolio over the coming year.

To ensure clients have adequate protection in place we recommend a review of all asset registers and building values. We are willing to assist in managing and protecting sums insured against average. This is in the interests of adding value in the intermediated model and preventing disastrous outcomes on claims where insured’s are significantly under insured.

About the Author: Paul Halley is the Managing Director of Ascent Underwriting Managers. www.ascentsure.co.za

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