South Africa has an insurance problem

Many South Africans are dangerously underinsured due to misunderstandings about insurance, outdated asset valuations, and a mistrust of the industry, leaving individuals and businesses financially exposed when disaster strikes.

Jonathan Lindeque, divisional executive of agriculture and food at GIB, warned that the consequences of underinsurance can be financially devastating.

Whether it’s damage to a home, loss of personal belongings, or significant agricultural losses, too many individuals only discover gaps in their coverage when it’s too late.

In many cases, policies don’t reflect the actual value of assets, leaving policyholders out of pocket when they need help the most.

Lindeque said that there are two key problems at the heart of this issue: a widespread lack of understanding about how insurance works and a deep mistrust in the industry itself.

“Insurance feels like a luxury for many South Africans, but the risk of being underinsured or uninsured entirely is far more costly in the long run,” he said.

“One incorrect calculation or overlooked item could mean a reduced payout, an inability to replace vital equipment, or even insolvency.”

Lindeque explained that if a business suffers a fire, flood or theft and the value of the assets has been under-declared, or outdated figures have been used – the owner will only receive a partial payout.

“Even more concerning is underinsurance in business interruption cover. Clients often default to accounting gross profit instead of using the correct insurance definition, and this is where we see the biggest gaps and the highest claim shortfalls.”

In addition, widespread reliance on outdated asset registers, cost-saving attempts that leave out VAT (whether intentional or otherwise), or failure to include new equipment may have catastrophic implications for businesses.

On the personal side, many individuals mistakenly insure items at their original purchase price or depreciated accounting value rather than their current replacement cost.

“People often don’t realise that they should be insuring their fixed assets at replacement value, vehicles at retail value plus extras, and movable equipment at market value.”

“It can be confusing, even for financially savvy clients, which is why having a trusted broker is so important,” Lindeque added.

Cutting insurance could cost you more in the long-term

Lindeque explained that inflation and technological changes mean that the cost of replacing assets increases every year.

While insurers typically apply inflationary increases between 6% and 15%, it’s ultimately the insured’s responsibility to make sure their cover keeps up.

“We recommend an on-site valuation every three years and a desktop valuation in the in-between years,” Lindeque said.

“If you’re ever unsure, slightly over-insuring is always a safer bet. The difference in premium is often negligible, but the impact on a claim can be massive.”

For many consumers, insurance feels incredibly complicated and difficult to navigate. While some insurers have tried to simplify policy language, insurance remains a minefield for many.

The fine print, technical terms, and complex conditions often leave people unsure of what they’re actually covered for, Lindeque.

He added that for this reason, brokers are not just helpful but essential. “A good insurance broker doesn’t just sell you a policy; they help you apply it to your life or business.”

Brokers do everything from guiding clients through declarations to recommending asset valuations and calculating accurate business interruption figures. They also translate jargon into more practical terms for clients.

Even minor administrative oversights, such as forgetting to remove sold items or adding new purchases, can lead to incorrect cover and costly consequences.

In a tough economy, it may be tempting to trim insurance costs, but Lindeque stressed that cutting corners could prove far more expensive in the long run.