Many South Africans have had to adjust to doing more with less because of rising interest rates, tax rates, and fuel and food price increases. Usually during tough economic times people tend to cut back on important expenses such as insurance. Some would argue that this is justified as insurers have the potential to take advantage of consumers.
Taking a look at insurance costs
“There are costs involved to run the day to day business of an insurance company, administration house or brokerage that is why there are fees being charged. To deliver a specific service,” stated Santie Stevens, a representative for Insurance Busters.
The law further makes it compulsory for insurers, administration houses and intermediaries to declare all fees and for what the fees are for. There are costs involved when activating and maintaining an insurance policy, that is why most insurers have a once off start-up fee, added Stevens.
These fees ought to very clearly be stipulated on the policy schedule that each client is issued with, and any fees that are being charged during the course of the cover should be explained to the customer.
“The fees that are being charged may differ from one company to another. These fees are regulated and with the Retail Distribution Review (RDR) currently being looked at by the Financial Services Board (FSB) it will be even more regulated to ensure that all fees being charged are charged for the correct reasons,” explained Stevens.
The actual premium rate reflected under each section per insured item on the schedule, goes into a “pool” from where claims will be paid. It is important to note that the money that is then paid towards this “pool” is not used to run the day to day business cost, but purely to pay out claims, highlighted Stevens.
The choice, however, remains with the customer if he/she accepts the rate, and terms and conditions from a specific insurer or not. The fees are normally included in the total rate quoted by the insurer or administration house who usually has a binder agreement in place.
“All factors are disclosed to a customer when dealing through an intermediary or advisor that will assist the client in making an informed decision,” said Stevens.
It is also worthwhile noting that insurance companies will base their rate on the risk they need to take on. So if you are considered a higher risk according to their criteria you will, in all likelihood, be expected to pay more.
“No insurance company or administration house is out to take advantage of any customer. But due to people trying to enrich themselves from insurance companies over the years, [they] have rules, known as underwriting rules, as to what risk they will accept and what they won’t accept,” reiterated Stevens.
Tips for taking out insurance
It is always best to consult with and use a professional registered intermediary or advisor to help you make an informed decision on what can be self-insured and what should be shared with an insurer. “An intermediary can guide a client to ensure they take out the correct product offered by the various insurers, looking at all factors and not only the monthly rate,” Stevens advised.
Remember, the more risk you share with an insurer, the higher the monthly rate will be. “That is why the customer can choose to increase the excess to decrease the premium. This means the client will be taking a bigger share of the risk and share a smaller portion with the insurer,” added Stevens.
The more small claims you make against your insurance policy, the higher the premium will become. Huge amounts of small claims can result in the insurer giving you notification of cancelation and should this happen, any other insurance company may refuse to take on your risk. Should other insurers, however, decide to take on your risk, you may be listed as a high claimer and therefore seen as high risk, Stevens explained.
There are many ways to reduce the monthly rate of your insurance cover if you share the correct risk with an insurer, but it is important that you get professional advice to assist you in making these decisions.
Another tip would be to do an annual review of your cover, and the costs involved, because as circumstances change, so should your cover.
It is also important that consumers read their schedule and policy wording. “Even though cover can be quoted online and activated over the telephone to make it quick and fast, you may have taken out the incorrect cover that is not suitable for your specific insurance needs,” Stevens warned.
It is also always best to speak to a specialist in short term insurance cover that can guide you and help you understand what every amount reflected on your schedule is going towards, and what is covered and what is not covered.
Despite the notion that insurance tends to be on the expensive side, especially in an economic climate where people are already struggling to make ends meet, it is also a necessary expense when opposed to forking out thousands on those unforeseeable expenses.
Ultimately it is up to you as the consumer to manage your spend and decide what is a priority in terms of having insurance cover or not. While insurance can get pricey, it is important to educate yourself around your needs and the cover available to avoid being taken advantage of.
Handy tip: To gain information on and apply for everything from car and household insurance to disability and funeral cover, visit Justmoney and apply today.