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Unfortunately, the start of 2016 sees us in a difficult economic reality.
At the beginning of November last year, just over three months ago, the rand was trading at just under R14 to the US dollar. Today it is valued at around the R16 mark, indicating a decrease of over 15%.
Our currency is taking a beating, but this doesn’t only affect how much can go in your shopping trolley while staying within budget. Your insurance cover is also impacted, and may in fact no longer be sufficient to protect you against the depreciating rand.
Survey your situation
Take a look around your house, or your business. How many items are imported, and will it cost more to replace if they have to be rebought using a weaker rand?
First on your list at home might be your flat-screen TV, your laptop and perhaps your cellphone. At your business it might be trading stock, electronics or specialised machinery. But if you look closer, you’ll realise that several other items may also belong on this list, such as your fridge, cleaning equipment and expensive fittings.
Many businesses hold imported stock. In fact, you should consider all items that will cost more to import today than they would have if the rand was stronger.
Calculate your costs
Let’s imagine how a 10% decrease in the rand value would affect your insurance. Perhaps as part of your home contents insurance, you estimated your TV would cost R20 000 to replace.
Today, however, it may actually cost R22 000 to replace. Similarly, if you purchased imported trading stock to the value of R100 000, this same stock inventory might now cost you R10 000 to R20 000 more.
You need to be absolutely certain that all insured items are covered at the right replacement value. Being under insured can lead to a claim being repudiated or to receiving a smaller payout based on the insured value provided, which may no longer be sufficient to cover your loss.
Remember that such a loss could result from either theft or damage caused by fire, flooding or other unforeseen events.
For example, if you have installed expensive, imported carpets only to have them damaged by flooding, you must make sure that your insurance would be sufficient to cover replacing your carpets at today’s value.
Similarly, any imported tiles used on your property will cost more per square metre to replace than a few months ago. The financial impact becomes more severe as the value of imported goods rises, and businesses that hold large quantities of imported stock should therefore take particular care.
Stay covered
Keeping an eye on the dollar exchange rate is important, but for some of us it is not something we do daily. We can always hope that the rand will get stronger.
However, for the moment, keep your policy up to date and consider reviewing your cover at least once every six months to make sure it remains adequate.
There are many factors to weigh up and if you are unsure about your replacement value or anything in your policy, chat to your financial adviser.
*Bertus Visser is chief executive of distribution at PSG Insure.
