Insurance in a tough economic climate: how to make it work for you

Tough economic conditions and several adverse macro-events contributed to a sustained hard market. Picture: Independent Newspapers.

Tough economic conditions and several adverse macro-events contributed to a sustained hard market. Picture: Independent Newspapers.

Published Jan 11, 2024


By Karen Rimmer

2023 presented its fair share of challenges for consumers and insurers alike. Tough economic conditions and several adverse macro-events contributed to a sustained hard market, characterised by higher premiums and stricter policy and underwriting parameters. In addition, rising inflation and living costs mean many South Africans are finding ways to consolidate their expenses and insurance is often one of the first things on the chopping block. However, given the vital role that insurance plays in providing a crucial safeguard against unforeseen risk, doing away with it completely may be short-sighted. Commenting on this topic is Karen .

Stability in times of uncertainty

The past few years have demonstrated just how unpredictable life can be. The COVID-19 pandemic, July 2021 civil unrest, flooding in KwaZulu-Natal in 2022 and parts of the Western Cape in 2023, and recent hailstorms across Gauteng serve as important reminders that being financially prepared can make a world of difference.

Fundamentally, insurance provides consumers with peace of mind that their financial standing will be safeguarded against unexpected losses. This is particularly important in the current socioeconomic, environmental and political landscape.

By way of a practical example, consider financing the purchase of a car. Without insurance, should that vehicle be damaged or destroyed in a natural disaster or accident, the cost of repairs or replacement may end up exceeding the purchase value of the vehicle.

In these scenarios, motorists may be forced to withdraw large amounts from their personal savings or take out an additional loan to finance the shortfall. For the vast majority of South Africans, the financial cost is simply too great.

Consider advice on mitigating risk

Apart from the benefit of having insurance when the unexpected occurs, being insured can also provide consumers with insights on how to manage risks effectively. An adviser can provide valuable guidance on risk-management measures, and helping policyholders to understand their responsibilities in terms of making sure that all reasonable precautions are taken to avoid unnecessary losses. Ultimately, access to this valuable information can help foster a culture of responsible decision-making and help to avoid excessive claims, which can lead to increased premiums.

Tips on making insurance more affordable

There are alternatives to simply cancelling a policy. When taking out insurance cover, consumers are advised to obtain and compare a number of quotes and insurance products offered by reputable insurers. This could go a long way in striking the delicate balance between affordability and quality financial protection. Advisers can also help consumers understand which risks can be viably self-insured, and which areas are non-negotiables when it comes to having adequate cover.

In addition, some providers bundle discounts or benefits with their insurance policies, but the potential savings may not always result in a cheaper insurance premium or align to the client’s needs. By understanding the client's unique needs, advisers can recommend suitable products that meet their individual requirements, eliminating unnecessary expenses and ensuring optimal coverage at the best rate.

Before making any decisions, it's essential to weigh up the long-term consequences of cancelling a policy or reviewing the level of cover. Working with an adviser to do this can help consumers explore the cost-effective strategies that suit their lifestyle and ensure a secure and protected future.

* Rimmer is the head of distribution at PSG Insure.