Here is a compiled article of Frequently Asked Questions courtesy of Alexander Forbes.
FAQ 1: WHY IS THE PREMIUM INCREASE ON MY CONTENTS AND BUILDINGS PREMIUM SO MUCH HIGHER THAN ON VEHICLES?
The premium for contents and buildings are based on two components.
COMPONENT 1 – SUM INSURED
The first component of the premium is based on the Sum Insured value of the contents or buildings that are increased every year on the renewal of the policy.
Why are the Contents and Buildings Sum Insured values increased?
Buildings:
The Sum Insured is the amount of money that the home is covered for and is the most AFI will pay if the client’s home totally destroyed. It is also the amount it would cost to rebuild the home although that’s not the same as the home’s market value, which could be greater or less.
As building costs escalate every year, it is important to adjust the Sum Insured with the increase in building costs so that the client remains fully covered. Building costs consist of contractor tender prices as well as building input costs. Alexander Forbes Insurance looks to the Bureau of Economic Research building costs indices to ensure that appropriate increases are applied to buildings which reflect the escalation in building cost.
Another factor that should be taken into account is that rebuilding of a home is not immediate and may take anything from a few months up to a year. Over the period of rebuilding costs can be expected to continue to escalate, i.e. labour and material costs may be more expensive in 6 months time than they are now. This is taken into account in the % increase that is applied to the Sum Insured.
To help to prevent your sum insured from falling behind, we automatically increase it at renewal but despite this precaution, many of our client’s values remain too low. Please review your sum insured carefully. If you need professional assistance I can put you in touch with a valuator.
Contents:
The client is covered for the cost of replacing the contents up to the Sum Insured. As items get more expensive over time, the Sum Insured will become inadequate to cover the replacement cost of the item. To help to prevent the client’s sum insured from falling behind, we automatically increase at renewal but despite this precaution, many of our client’s values remain too low. Please ensure that the client’s sum insured is reviewed carefully, a valuator should be consulted if necessary.
COMPONENT 2 – INSURER ADMINISTRATION COSTS
The second part of the increase in the Buildings and Contents premium is due to escalating costs within AFI itself. The biggest cost here is the salaries of the people that work at AFI.
There is also IT costs, rental and general overheads. The inflationary increase allocated in this respect is hence the best estimate of the actual cost escalation in the business over the past year and may hence be higher than the current inflation in the economy.
FAQ 2: WHY IS MY VEHICLE PREMIUM INCREASING IF THE VALUE OF MY VEHICLE IS DEPRECIATING?
Again inflation is responsible as the cost of towing, repairing and car hire will increase over time. The cost of repairs is split between labour, paint and parts. If vehicles are within warranty AFI needs to fit Original Equipment Manufacturers (“OEM”) parts which are imported in many cases. When parts are imported the exchange rate also plays a role. If parts are imported at a time when the Rand is very weak relative to major currencies such as the Dollar or Euro, the part is more expensive in Rand terms. The increase in the price of the part is then passed to the panel beater who purchases the parts and who in turn passes the increase to insurers who pay for repairs. This is why it is encouraged to fit alternative parts which are much cheaper but of the same quality as original OEM parts. It should be noted that alternative parts although cheaper than OEM parts also escalate with inflation over time and pricing will also have to allow for this.
There is also the fact that costs are escalating within AFI such as salaries and other overheads. Another reason is that when the vehicle value is reduced, it becomes more likely that repairs would exceed the percentage of the sum insured that triggers a write-off.
FAQ 3: THE EXCHANGE RATE HAS BEEN STABLE OVER THE PAST 6 MONTHS, WHY ARE YOU USING IT AS AN EXCUSE FOR HIGHER PARTS PRICES?
It depends on how much stocked parts a repairer or vehicle manufacturer has. There is generally a lag on inflation as manufacturers or repairers may have existing stock during the time of high inflation to afford not to pass the increase to their customers. However, any new stock that they buy will be more expensive and these increases will be passed onto insurers later on when existing stock has been depleted. That is why parts may still be very expensive even if the exchange rate is going through a relatively stable period.
Article courtesy of Alexander Forbes.
For a quote, contact us on +27 11 395 1631 or email us at nick@ayobainsurance.co.za / natalie@ayobainsurance.co.za
Alternatively, you can follow the link http://ayobainsurance.co.za/detailed-quote/
Some say the only certainties are death and taxes. Nothing else can hold the same level of probability. This, however, does not mean everything else holds the same probability as the sun rising from the north!
There is always a chance of those other elements like sickness, Liverpool winning the English premier league one day and so forth though the likelihood of each of these happening varies from low to high. It is a great tragedy that often, most are caught unaware when these events happen, including death itself which as we mentioned is inevitable.
It is such a good thing to see people starting to appreciate the importance of having one’s possessions secure and protected. Inventions such as the electric fence keep out potential intruders, cautious driving reduces susceptibility to an accident, exercise reduces the chances of suffering a heart attack and so on. It is good that we can control all that is within our means, but what of those dangers that are not within our control? We can only predict their severity but cannot ascertain with exactness the extent of damage they will cause.
An Act of God (Vis Major/force majeure) is defined as a violent and catastrophic event caused by forces of nature, which could not have been prevented or avoided by foresight or prudence. Examples include hurricanes, tornadoes, floods and earthquakes. The probability of any viz major occurring depends largely on the geographical location, thereby leaving every area at risk of experiencing one. The SADC region and world at large mourn the lives lost and property destroyed recently by Cyclone Idai. As of 24th March 2019, the death toll was said to be at least 700 (excluding unaccounted for victims) and the infrastructural damage at least hundreds of millions of Rands.
Though Viz majors cannot be prevented, their financial impact can be lightened. Think of the orphans, homeless families, destroyed transportation network systems. Financial services players have joined arms and offered some form of relief and/or solace in the unfortunate event that these occur.
Insurers have designed products that will ensure one’s family is catered for in the unfortunate event of them passing on. These include life assurance policies that will pay out a lump sum to your dependents when you pass on to ensure they pay off any debts, continue with life and finish off their schooling and so forth. Though the money will not replace you, it certainly does assist the family with facing life without you. Medical aid schemes are there to cover you when you are sick/ill or injured. Funeral assurance will assist in the costs associated with the funeral arrangements after your beloved die.
Housing is a basic human right. Imagine what you would do after completing paying off the twenty-year-old bond only to lose the house to a flood, earthquake or cyclone. Insurance companies will indemnify you that is to be restored back to the same position one was in prior to a loss, under their various products in the event of such a tragedy happen. This extends to include all your other material possessions despite how big or small from luxurious cars to silverware.
The further relieving news are insurers will not only provide a remedy when viz majors occur but other unfortunate unforeseen events ranging from accidents, acts of other people, malicious damages and a host of others depending on the product sought. Furthermore, though insurance is a post-loss mechanism, underwriters will help identify the risk you are exposed to and aid you with some technics and advice on how to minimize the chances or impact of a loss.
For a quote, contact us on +27 11 395 1631 or email us at nick@ayobainsurance.co.za / natalie@ayobainsurance.co.za
Alternatively, you can follow the link http://ayobainsurance.co.za/detailed-quote/