In a recent article, I quoted from a review conducted by Allianz Global Corporate & Specialty (AGCS) that examined developments in corporate insurance claims and highlighted the top causes of loss for companies, as well as other emerging trends to watch.
“Businesses must navigate an increasingly complex risk landscape. As well as having to combat the threat posed by natural catastrophes and man-made hazards, companies must deal with the demands of a less forgiving regulatory and legal environment, emerging risks posed by our growing reliance on technology and, of course, the challenges that issues such as the Ukraine conflict and rising inflation bring. All these factors can combine to impair the successful running of operations. Insurers have a vital role to play in ensuring any disruption following a loss event is minimised.”
In the same article, Santam highlighted another impact, of which the general public is probably unaware:
“We, unfortunately, find ourselves in a very unique situation in South Africa, whereby Covid-19, the back order of obtaining new vehicle models, the war between Ukraine and Russia, and then the recent floods in KwaZulu-Natal, causing significant damage to major vehicle manufacturing plants. Internationally, Covid-19 lockdown measures in China and Taiwan, two major vehicle component manufacturing countries, will put further supply constraints to the motor industry. Stock holding amongst all vehicle OEMs and dealerships has decreased, and thus parts availability has reduced from 98% to under 80% in some instances. Although we have seen improvement to above 90%, there remains a lot of volatility in the supply chain across all vehicle brands.”
As advisers, we are tasked with more than selling policies. We also have an educational function that serves two purposes:
- It helps us stay in touch with clients and remain top of mind; and
- It helps to prevent unrealistic expectations, which could lead to a loss of business if not addressed regularly.
The factors listed above are not known by the general public who are insured. We can personalise this in a way that addresses the points stated above. Fortunately, much of the hard work in this regard is done for us by product providers. Santam’s latest publication is a case in point, focusing on the proper maintenance of assets by clients to ensure a positive claims experience.
“Many people do not realise that as a policyholder they agree to specific terms and conditions, and they have a responsibility to uphold their end of the contract. Furthermore, purchasing cover without properly maintaining your assets presents certain limitations,” according to Attie Blaauw, the head of Personal Lines Underwriting at Santam.
Principle of insurance
When defining insurable risk, Blaauw explains that insurance is simply a risk transfer mechanism that offsets loss of, or damage to, insured property. This loss may arise due to exposure to a known and agreed risk, such as fire or theft.
“The aim is to indemnify or compensate the insured party by placing them back in the same financial position they were in before suffering a loss or damage,” says Blaauw.
Wear and tear
Blaauw says personal insurance policies are designed to respond to most risks that arise from natural and unnatural causes, such as fire or explosion, lightning, burglary, hi-jacking, earthquakes, flooding, storms, wind, hail or snow. The focus, however, remains on sudden and unforeseen events.
Risks arising from a lack of maintenance and normal wear and tear are largely viewed as undesirable risks and are costs that should be budgeted for by consumers.
He explains that there are typical exclusions in policy wordings of which consumers should be aware, such as gradual deterioration caused by poor maintenance, wear and tear, mould, discoloration, rising damp, rot, insect infestation, vermin, weeds and roots.
“It is every homeowner’s responsibility to ensure regular maintenance is budgeted for and carried out on their property, as this helps to maintain the integrity of the construction and prevents weak points which can be exposed by severe weather events, such as storms or flooding. This requires that the roof, structure and all its fixtures, including swimming pool, lapa, boundary walls and paving, must be kept in good condition in accordance with the policyholder’s responsibility towards duty of care as outlined in the insurance contract,” Blaauw says.
According to the Ombudsman for Short-term Insurance, the primary cause of homeowners claims disputes in 2020, at 47%, and a slight increase in 2021 to 53%, was the rejection of claims based on policy exclusions for damage caused by defective design, construction or workmanship, wear and tear, and lack of building maintenance.
Santam’s statistics indicate that about 70% of internal property claim disputes are attributed to damage caused by wear and tear under the household contents and homeowner’s section of their policies.
It is important for policyholders to have a clear understanding of the difference between accidental loss or damage to property arising from an insured event, and losses caused by gradual wear and tear, which are typically not covered by insurance and require regular maintenance by the policyholder.
Financial hardship
Insurers face extremely difficult times in assessing the validity of claims from financially distressed clients who see their short-term policies as an untapped piggy-bank. This is exacerbated by external factors such as load-shedding, which causes power surges. It is extremely difficult to prove a causal connection where a fridge or television set is quite old, yet insurers pass the benefit of doubt on to the client.
