Manage Your Personal Insurance Portfolio

The secret lies in risk management and regular analysis of your insurance portfolio

As we face an increasingly tougher economic climate, many households are taking financial strain and tightening their purse strings to cope with the rising cost of living and soaring job insecurity. Faced with these financial pressures, there’s always the temptation to cut insurance costs in a bid to save money on what many view as a grudge purchase – until something goes wrong that is!

The right approach is to review covers critically with your broker, understand what the essentials are, and then right-size them to ensure that you are sufficiently covered for any worst-case scenarios.  When trying to cut back, the most important factor is to ensure that you are not exposing yourself to the risk of uninsured losses which could prove far more financially crippling. 

Risk advisors and insurance brokerage Aon says the secret lies in risk managing your insurance portfolio.  “An insurance broker comes with experience and professional insights that can provide you with the peace of mind of knowing that your hard-earned assets are safeguarded in the event of a loss and, most importantly, that you are paying the right price for the right amount of cover to take care of your specific needs,” says Mandy Barrett of Aon South Africa.

“Luck has an awful habit of leaving when you lean on it too hard. Consider the risk of driving a vehicle on South Africa’s roads without proper insurance, and what the implications would be if involved in an accident, whether it was your fault or not; or coming home from the office to find you have been cleaned out in a burglary.  The repercussions of suffering such a significant uninsured loss could push you into far greater financial distress that could spell complete disaster. Insurance is an essential safeguard of your assets and preservation of your financial security so that any setback is temporary, and you can be restored to your former financial position quickly and without financial loss,” she explains.

Aon provides the following top tips for reviewing your insurance covers with your broker:

• Consider an increased excess on your policy that you can afford – this is the portion you are liable to pay upfront in the event of a claim. By doing this, you can obtain a lower monthly premium BUT there is one very important caveat here – you must be able to afford the high excess and have this money readily available should you need it. Many insurers offer the promise of low premiums and while these premiums may be cheaper than other insurers, the catch comes in on having to pay a very high excess in the event of a claim.  Consider this example – on her vehicle worth R150 000, Sue gets a low premium rate of R428 per month, on the proviso that she accepts a basic excess of 25% of the retail value of her car.  That means, should anything go wrong and Sue needs to claim for damages or theft of the vehicle, she will be liable for the first amount or excess of R37 500.  If Sue is already facing financial constraints, how likely is she to have R37 500 spare cash to fix her car? Always discuss such an option with your broker and get some professional insights on whether this is a feasible solution for your specific circumstances.  Typically, the only time such a premium structure makes sense is if you make financial provision for the excess amount, although the reality is that most people don’t. They usually end up having to incur more debt simply to pay the excess.
• Accept a risk in its entirety – you may opt not to insure an item that is easily replaceable and accept the risk of replacement on your cost. For example, you may have a number of spare cell phones in your cupboard thanks to various contract upgrades, so it’s no biggie to replace your current cellphone with last year’s model should it get stolen or go for a swim. 
• Consolidate your homeowners, household contents and motor cover with one insurer – Many people are surprised to see how much they can save on their individual premiums for their car, household and contents when consolidated under one policy – think of it as collective bargaining! There is also the bonus of having only one debit order (so you save on bank costs), and the convenience of having one broker and point of contact for all your insurance needs and claims administration as well as one policy service fee.    
• Pay attention to security measures – It’s really important to ensure that any required security measures specified by the insurer for your property or vehicle are implemented – failure to do so could see you pay a higher excess in the event of a claim, and in some extreme cases, your claim could even be repudiated entirely. Similarly if you have added additional or upgraded security measures over and above insurer requirements such as a tracking device to your vehicle, or an electric fence linked to armed response at home, tell you broker about it and see if you qualify for a premium discount thanks to the additional security and thus lower risk.
• Avoid under-insurance and insure for replacement value, not what you paid for it – This is especially important in the case of an appreciating asset, such as your home or jewellery. Your property and its contents must be accurately insured for replacement cost at today’s prices to avoid under-insurance and the application of the ‘average formula’.  You may have bought your home 10 years ago for R500k, but today that same home is worth R2million, even more if it has to be built to the same standard from scratch if it burnt to the ground.  Any insured jewellery should be evaluated every two years to insure your appreciating asset for the correct amount.  Again, a professional insurance broker is adept at helping you navigate these complexities. 
• Keep an asset register - Analyse your portfolio professionally with the assistance of an asset register at least once a year. You may even find that you’re paying for insurance on assets and items you no longer own
• Think before you buy – If you’re still in the market to buy a property or vehicle, then it’s the perfect time to talk to your broker about all the factors that can influence your insurance premiums – for example certain vehicles and younger drivers will attract higher premiums, a thatch roof on your property or an open tract of land alongside will have higher risk ratings, and hence cost more to insure. If you’re still in the market to buy, do your homework and know what you are in for.   
• Take steps to mitigate risk – Insurance is there for those accidents and mishaps that simply cannot be avoided. Claims come with the cost of excesses and eventually increased premiums, so consider whether you can really afford to claim for causes that could have been avoided in the first place – put the cell phone cover and screen protector on that new cell phone and don’t give your 21-year old son the fastest, zippiest sports car his (testosterone) heart and inexperienced right-pedal foot desires.  Be practical.

“With the screws turning in on household budgets, it’s natural to want to cut back and save where you can. The secret is to do so sensibly, to avoid the pitfalls of under-insurance and the risk of suffering an uninsured or under-insured risk that could push you into greater financial duress that you may not be able to recover from.  By working with a professional Aon broker, you’ll have the benefit of qualified advice and real-life experience of similar situations to provide perspective.  Your broker can advise you how to reduce the incidence of losses, improve your risk rating and thereby enjoy more favourable premiums from insurers.  While the effects of a rollercoaster economy may be unavoidable, the cost of your insurance shouldn’t be,” concludes Mandy.