• Wednesday, June 19, 2024
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With rising inflation insurance should be upscaled for realist claims – Fola Daniel

With rising inflation insurance should be upscaled for realist claims – Fola Daniel

To ensure that insurance claims are realistic and adequate in an inflationary environment, policyholders should consider upscaling their policy value.

By upscaling insurance coverage and considering these factors, policyholders can better protect themselves from the impacts of inflation and ensure that their insurance claims are realistic and effective in meeting their needs

Fola Daniel, managing director, FBS Reinsurance (FBS Re) made the remark on the side-line of a three days training program anchored jointly by FBS Re and Munich Reinsurance(Munich Re) of South Africa, aimed at addressing technical knowledge gaps in the insurance industry.

Daniel who is also a former commissioner for Insurance and CEO, National Insurance Commission (NAICOM) said with the devaluation of currency, most sum-insured have become grossly inadequate.

According to him, if you bought a vehicle for N80 million last year and you continue to insure it, may be depreciated by 25 percent, and you insured for N60 million at renewal, it makes book sense, but insurance is about indemnity, placing you in the position you occupied before the loss.

“So, with the current price at N200m, the depreciated value of N65m will not confer indemnity (claim), as a result of the combined force of inflation and currency devaluation.” In the event of a loss, the insured may not be able to replace the car at the current selling price. This is one of the effects of the devaluation, Daniel said.

“We relate that to vehicle, what of building? As at this time last year, a bag of cement was N5,000.00 by April last year, in April this year, cement was sold for N12,000. So, if you value your property, looking at the factors of construction – cement, labour and others, at N10 million.” A N10 million indemnity today will not build a house. So, there is a need to upscale the values in line with inflationary trends to be able to receive a realistic indemnity, he said.

Daniel asked why people insure in the first place, said they insure because they hold assets at risk.

According to him, they utilize insurance mediums to offload their risks to insurers, for payment of a small amount of money and have the rest of mind, knowing that if loss occurs, insurance companies would provide succour.

“The preservation tendencies among the insuring public or corporate world are higher when there are inflationary trends. It makes good economic sense to preserve what you have and free resources for other needs, he stated.

According to experts, inflation can significantly impact the purchasing power of insurance claims, making it essential for policyholders to have adequate coverage to maintain their standard of living.

They listed some of the reasons to upscale insurance premiums to include purchasing power erosion, loss of value Increased financial risk, and accommodating future expenses.

Inflation can erode the purchasing power of the insurance claim, making it less effective in covering the policyholder’s expenses. Upscaling the insurance coverage helps to maintain the same level of purchasing power.

It can lead to a loss of value in the insurance claim, making it less valuable over time. Upscaling the coverage helps to maintain the value of the claim.

There is a tendency for increase financial risk for policyholders, especially if they are not adequately insured. Upscaling the coverage helps to mitigate this risk.

It can also lead to increased future expenses, such as healthcare costs or funeral expenses. Upscaling the coverage ensures that policyholders have sufficient funds to cover these expenses.