Insurance in a Tough Economic Climate: How to Make it Work for You

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

2023 has presented its fair share of challenges for consumers and insurers alike. Tough economic conditions and a number of adverse macroeconomic events have 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 seeking 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 safeguarding against unforeseen risk, doing away with it completely may be short-sighted.

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 position 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 an 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 high.

Well-considered 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, also helping policyholders to understand their responsibilities – for example, 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 may 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 assist consumers in distinguishing between risks that can be viably self-insured, and areas which are non-negotiable when it comes to ensuring adequate cover.

Furthermore, some providers bundle discounts or benefits with their insurance policies, but the potential savings do not always result in a cheaper insurance premium or the product might not 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 cover at the best rate.

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