Rethinking insurance? How to navigate risk in a changing world

Faced with budget constraints, it’s not surprising that consumers often prioritise paying off debt before spending money on insuring their assets. The younger generation, for example, tends to focus on reducing their student loans.

We get some expert insights into changing insurance patterns, why you shouldn’t ditch cover completely, and how to buy the type of product that makes the most sense for you.

Tip: A budget calculator can help you determine how much you can afford to spend on insurance every month. 

Low uptake – but insurance is vital

Funeral cover excluded, the percentage of South Africans with an insurance product is only 19%, according to the Financial Sector Outlook Study conducted by the Financial Sector Conduct Authority in 2022.

The Ignition Group states that only 10% of South Africans have life or physical asset insurance, and around 30% of motorists have car insurance.

“Insurance may be the last thing on your mind when the cost of living rises and your disposable income is low,” says Peter Olyott, CEO of Indwe Broker Holdings. “However, you may be financially exposed if you don’t have adequate cover.”

Covering your lifestyle

Not everyone can afford their own home, and many South Africans rely on ride-sharing or public transport to get around, so home or car insurance may not be a priority.

However, says Olyott, members of Generation Z (born in the late 1990s and early 2000s) tend to prioritise the items that are most important to them, such as laptops, cell phones, and iPads.

“Retailers and manufacturers target these products for embedded insurance – that is, add-on insurance policies that cover loss, damage, or a problem or defect in the product,” he notes.

Cornel Schoeman, chief operating officer at Genric Insurance, says people – and particularly Generation Z – tend to insure what they absolutely can’t live without, even though this type of insurance, isolated from any other cover, “comes at a higher premium”.

“You could argue that the premiums could be saved over a year or two, and replace the items, but given that many devices cost more than R25,000, it’s probably not realistic, or would mean a serious downgrade,” he elaborates.

“It’s not just about insuring their latest gadget – it’s their entire lifestyle, a connection to the world and family, work on the go, calendar and e-mail, banking, social media, mobile payments, online shopping, entertainment, and streaming.”

Changing risks; new approaches

The risk landscape has changed in recent years – consider power surges due to load shedding, for example. Insurers have had to adapt to remain relevant to their target markets.

Schoeman points out that you don’t always need the most expensive product to cover your risk – you just need the right product that aligns with your risk exposure.

If you run a vehicle but can’t afford comprehensive insurance, a product such as a mechanical warranty provides financial assistance when parts fail that are no longer covered by the manufacturer’s warranty, for example. 

Taking advantage of niche products

Among the many niche options covering different types of risk is a primary healthcare plan – a simple, customisable health insurance product that allows you to add on benefits for emergencies, accidents, or maternity needs.

“These plans are popular because they offer unlimited GP visits,” says Schoeman.

Another example of niche cover is an accident-only product that covers you for road accidents and crime-related incidents, he notes.

“Many of these products cover you for medical emergencies, with guaranteed hospitalisation up to a specified amount,” Schoeman explains.

People who work for themselves or earn a living in the “gig economy” often opt for income protection.

Another popular niche option is pet insurance, says Schoeman. “This insurance is helpful as a sick or injured pet is the driver of a cost shock in many families, and veterinarian costs are almost as high as costs for human treatment.”

Top insurance tips

Schoeman and Olyott offer the following guidelines if you’re considering your insurance options:

• Assess the risks you may face personally, and research how to fill the gaps. Speak to an independent financial adviser to help craft a solution that works best for you. “You could increase the excess on your car insurance, for example, which can bring down your premiums; then self-fund repairs later on with the cash you’ve saved,” suggests Schoeman.
• Think about your current lifestyle needs, and what you aspire to in the future. “A financial adviser can work backwards from what you’d like to achieve,” says Olyott. “No 22-year-old thinks about retirement, but if you start from your senior years and work backwards, you’ll understand your needs at each stage of your life.”

Tip: If overindebtedness prevents you from managing your day-to-day risks, consider debt consolidation.