|ANDRIES BRITZ, a well-known broker and familiar face in the insurance industry in wine circles, sheds more light in this article on important aspects of insurance … and gives advice, inter alia, on how to limit high premiums.
World-wide short term insurance has become a pertinent item on any budget, be it for personal, farming or commercial risks. Insurance is an expensive necessity without which we cannot do.
But contrary to what most people think, insurance is not a product of the modern era. Chinese traders already took out a kind of insurance in 3000 BC. They knew that several of their boats would sink with the entire cargo when they attempted a dangerous part of the Yangtse River. Consequently they divided their cargo amongst each other so that they would not lose everything if some of their boats sank. This was in fact nothing if not a primitive insurance premium – at a fraction of the total value of their cargo.
The same principles still apply, althought the products have become a lot more sophisticated over the years. Today you can insure almost anything under the sun – even your pets, if you are prepared to pay up!
What causes insurance premiums to keep going up The answer is simple. Crime plays a big role, natural disasters are the order of the day all over the world, there are more and more accidents – not only car accidents, but also accidents in our homes, on our farms and at our workplaces. It is therefore critically important for each individual, farmer and entrepreneur to evaluate his risks regularly and revise his insurance portfolio.
Following events in America on 11 September 2001 insurance premiums increased sharply throughout the world and for many of us it made no sense that we in South Africa had to pay for something that happened in America. Just like individuals or businesses hedge their respective risks by obtaining coverage from insurers, local insurance companies hedge their risks with bigger reinsurers in other parts of the world. It is generally known that insurers hedge as much as 70% of their risks in this way.
We can divide the S.A. insurance market into four broad portfolio categories, namely:
Personal items – for the individual who wants to insure his personal assets such as his house, furniture and car.
Farming or agriculture – for the farmer who wants to insure his assets and farming risks.
Commercial and corporate – covering the respective risks of businesses and industries.
Marine and transit – coverage for everything that is being transported, be it road transport, air or sea cargo.
It is critically important for each individual, farmer and entrepreneur to evaluate his risks regularly and revise his insurance portfolio.
Let us take an in-depth look at farming insurance:
Following the floods in the Southern Cape and the Klein Karoo earlier this year it transpired that about 90% of the farming units affected were not only incorrectly insured, but also completely underinsured.
Except for the trauma that accompanies loss, incorrect insurance at the time of an event could mean a huge financial loss for a farming unit which could have been prevented by hedging the risks correctly. With this in mind we look at the following standard risk areas:
Coverage for all residential homes and garages including walls, gates and fences, sunken swimming pools and equipment, tennis courts, water tanks and borehole pumps, with the exception of wind pumps and driveways, against fire, storm damage, earthquakes, water damage, collision, accidental and malicious damage. The above also includes damage to public supply for which the insured is responsible, loss of rental and liability. It is important that buildings be insured for replacement value. Coverage against caving in and landslides are available options.
All household goods and personal effects on or in the premises of residence, including possessions of visitors, are covered against fire, earthquake, storm, collision, theft/burglary as well as malicious damage. Accidental damage is included, but mechanical and electric malfunction are optional. The insured value must reflect the total replacement value of all the items.
Personal all risk
Covers any loss and/or damage to personal effects that are normally worn by or carried with the insured up to a maximum of R1000 per item and up to a maximum amount as stipulated per incident. It is advisable to specify all items above R1000; cellphones are mandatory.
The insured can insure himself, his family and his employees against bodily injury caused by accident, violence, external and obvious means and resulting in disability or death, for previously agreed upon amounts.
Personal legal liability
Covers the insured for claims against him in his personal capacity resulting from accidental death, injury or damage to somebody else’s property. The standard coverage is R3 million per case, but an optional extension (PLIP) is available which covers the insured and his family members world-wide for as much as R20 million at a minimal additional premium.
Under this section there are three options of coverage -comprehensive, 3d party, fire and theft and 3d party exclusively. Liability towards passengers in a vehicle is a standard inclusion, but an extension for passengers on an open vehicle is an available option and is strongly recommended for farmers especially who transport employees. Vehicles are insured at market value.
Fire and allied perils
All other buildings, content and equipment (also in the open air) are covered against fire, earthquake and storm damage at replacement value. Malicious damage can be included herein. Fire coverage for vineyards and orchards is an optional extra under this section.
The same as above, except that accidental damage, loss of rental and liability arising from ownership of the property are included.
If the farming is interrupted or hampered as a result of an event under the above sections with the accompanying loss of income, a claim may be lodged against the insurer for such loss.
Covers any accidental, physical loss or damage to insured property, provided it is included in the policy.
If there is forced and violent entry to insured premises and the contents of such premises are damaged or stolen. Coverage under this section is normally subject to certain safety requirements.
Covers all cash and negotiable securities for an agreed amount both on the premises and in transit.
If a separate office or office building is in use on the farm, the contents of such premises may be insured under this section against fire, storm, earthquake, burglary/theft and accidental damage. Loss or damage of documents is included, but it is advisable to specify electronic equipment separately.
Breakage of glass in residential homes is normally included in the Home Owners section, maar glass of all other buildings must be specified under this section.
Makes provision for coverage against theft or embezzlement by employees.
Business all risk
All high risk items that are normally carried about for the purposes of farming (such as cell phones), must be specified under this section. The coverage is world-wide.
This section covers all items that belong to an insured party or fall under his control and are transported to or from any place. Transport of grapes to a cellar, for example.
Grants indemnity to the insured against claims deriving from accidental death or injury, loss or damage to tangible property caused by or as a result of the farming activities. Some of the most common risks are stray or lost animals who are involved in accidents and spreading of fires that may start on the farm. An optional extension for products liability is available.
If the insured is legally accountable for the death or bodily harm of any employee.
Provides coverage against physical loss of or damage to such equipment, for example lightning damage to computer equipment. Items are also covered in transit.
Motorboats, yachts and small vessels
All vessels to a maximum of 6 metres may be covered while at sea, in harbours or on interior water as well as in transit on the road or while moored ashore. Bigger vessels may be insured with a marine underwriter. It is critically important for the replacement value of assets to be used as the insured value at all times, except for vehicles and vessels that have to be insured at market value. Coverage for thatched roofs, wooden structures and crops is available from specialist insurers. Unfortunately crop coverage for grape farming is at present mostly limited to fire coverage as well as wind and hail damage for table grapes.
Limit higher premiums
Each insured party may make a contribution to limit the increase in premiums:
- Regularly revise your insurance portfolio to ensure that assets are not overinsured.
- Manage your risks and try to prevent high risks by preventive, timely action.
- Maintain vehicles and equipment, especially electrical switch equipment, in proper condition.
- If you become aware of embezzlement, report it to your broker or insurer. Embezzlement costs insurers millions of rands each year, which are recovered from clients through higher premiums.
- Ask your insurer to increase excess payments appropriately or practice self-insurance by carrying some of the risks yourself.
- Do not claim unnecessarily, a poor claims history due to certain trends causes higher premiums.
- A premium buys more than coverage
To obtain the right coverage at a fair premium is not always an easy task and many insurers do not cover the full spectrum of insurance. In this regard a good broker can help you save a fair amount of time and money. Get the broker to ask for quotations, determine insured values and handle claims. Since short term insurance is a huge expense on any farm’s budget, make sure you select the right broker:
- Find out whether he belongs to a professional association such as the insurance brokers’ council(IBC).
- Choose an expert in the field of short term insurance.
- Make sure he has the necessary infrastructure to fulfil your needs.
- Is he able to provide a comprehensive claims service
- Statistics indicate that instances where insured parties end up in the dilemma of being underinsured, they have mostly failed to consult a broker. Make sure that you do not become part of the statistics.
For comprehensive advice contact Andries at:
Tel. (021) 8073141