Beyond protected in tough economic times
The Namibian economy is facing a rather turbulent time. The latest figures from the central bank show that economic growth in 2016 slowed to 1.3%, but is expected to recover – although slowly – to an annual rate of 2, 5% in 2017, and to average 3, 5% over the next three years. The short-term insurance industry has been affected negatively by this technical recession. Couple that with high inflation, disposable incomes are under huge pressure from higher food, fuel, water and electricity prices; and the first thing to get cut off the budget is insurance. This has driven cancellations of non-life insurance products and involuntary policy lapses as a result of long unpaid insurance premiums.
Underinsurance is a challenge for Namibian businesses. Underestimating the replacement value of any business equipment, combined with a failure to regularly review policies, means that the percentage of Namibian businesses that are underinsured could be really high.In most cases, policyholders assume that if they have an insurance policy in place, they will be covered if anything happened to their business and assets. What they don’t realise is that if these possessions are not insured at their replacement value they will not be paid out in full – even if they have been diligently paying their insurance premiums every month.
If a policyholder’s equipment is worth N$500 000 and they only insure it for N$400 000, only 80% of their loss will be paid out when they claim. The last thing they need is to have to outlay additional funds following a loss during soft economic times, so it is critical to ensure that the value of their possessions is updated regularly.
REASONS SOME BUSINESSES ARE UNDERINSURED
The reasons for being under insured could either be failure to update policies or inventory lists or deliberate choice. Both might be linked to misinformation, rising inflation or the cost of insurance.
The rising inflation rate means there’s an increasing gap between the (market) value for which policyholders insured their goods and the real replacement value. Policies may take a 10% inflation increase into account; what happens when this figure rises to 20%? It means that a claim will pay out half of what the policyholder expects to get.
-
Failure to update policies and inventory lists - this is probably the most common sort of under insurance. Most people don’t realise that they have insured an item (or items) for market value, not full replacement value.
-
Deliberate choice – trying to save a bit of money on insurance premiums so choose to mot insure goods for their full replacement value. They choose to self-insure the difference.
THE IMPORTANT ROLE OF THE INTERMEDIARY
We understand that commercial businesses are under enormous pressure to produce results even in times of reduced income, and this is where the value of an intermediary comes in. As an intermediary pay closer attention to the nature and risks of under insurance and advise policyholders accordingly.
The insurance industry is complex. Commercial businesses and their management don’t necessarily have the time or expertise to navigate the wide spectrum of insurance products available. Ensure that you guide commercial clients; by helping them manage and prepare for changes to the environments that affect their business and ultimately, help manage risks to ensure their business’ sustainability. You know their business, know what insurance products are best suited to mitigate the risks that are specific to that business and industry, and are in tune with an evolving risk climate. All of this, put together, saves policyholders time, money, and effort and, in many cases, ensures the continued success of their business.
Talk to your clients, encourage them to review their policies annually and especially after new assets have been added to the business. For more information on our commercial offering speak to your relationship manager.