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As career insurance people, we see our fair share of calamities. Few of them, however, come close to the terrible fires in the Southern Cape recently.
Social media gave those of us further afield an inkling of the scale of the disaster as it unfolded. But visiting the region in the aftermath of the fire really brought home the enormity of what had happened – and how thousands of people’s lives have been devastated.
The desolation almost defies description. It was truly a cataclysmic event, which will take many, many years to overcome.
A report into the cause of the fire has now been made public, and it has been found that people likely started it; what will probably never be known is whether it was arson, or simply a terrible accident. Certainly, the prevalence of alien vegetation aggravated the fire.
One good thing to come of this tragedy is the determination of the local authorities to build more fire-resistant residential accommodation, in part using that very alien vegetation. But this will offer cold comfort to those who lost everything.
Enormous damage was caused in the five days that as many as 30 fires, fanned by strong winds, raged through Knysna, Sedgefield, Plettenberg Bay and other areas, gutting hundreds of homes and businesses. Initial estimates have put the damage at between R4 billion and R5 billion – although the final cost will likely be higher.
It’s always worth remembering that the loss is not just a financial one; but how can one put a price on memories, prized possessions, homes (as opposed to houses)? How does anyone bounce back completely from such a disaster?
Nevertheless, determined in their adversity, many residents have already begun to pick up the pieces of their lives. Some will never regain what they had, unfortunately; those who can, would most likely have had proper insurance cover.
Hollard, like all other insurers managing claims related to the Southern Cape fires, has thrown resources at assisting policyholders to get back on their feet. It’s a massively complex task that will take some time to complete, involving a wide variety of people: brokers, claims staff, loss adjusters, engineers, quantity surveyors and others are all involved in helping people to get back what they lost.
What is clear already, tragically, is that many people did not enjoy proper, accurate insurance cover. It’s a hard, hard lesson to learn, to lose everything you have (or much of it) – and then discover your insurance cover was not sufficient.
The purpose of good insurance, ultimately, is to enable people to create and secure a better future. But this depends almost entirely on policyholders clearly understanding the cover they should have, and buying it; in this regard, the advice of a reputable and capable financial intermediary can make a crucial difference.
So, now that the flames have been doused and people’s tears have largely dried up, what are the lessons that all of us can take away from this tragedy?
Lesson #1: Ensure your cover is accurate (and up to date)
One of the fundamental aspects of making insurance choices is cost: how much do I want to insure my property for, and what will my premiums be? The simple, direct answer is, insure it for what it’s worth – no more, no less.
An important consideration here is the concept of “average”. This is a standard insurance practice that comes into play when you are underinsured, and you suffer a partial loss. Essentially, what it means is that you will be liable for the underinsured portion of your loss.
For example, if your home is worth R1 million but you have insured it for only R500 000, you will not be paid out the full insured amount if it is partially destroyed. If the damages are R300 000 you will be paid out only R150 000, in effect leaving you R150 000 out of pocket.
Also, unique costs associated with historic homes and existing building codes may have an impact on the value of your home. For example, you may have to install a heat pump or solar geyser instead of a normal geyser when you rebuild.
Bear in mind also the interests of other parties, such as your bank if your property is bonded, as this will affect your settlement. And, of course, dual insurance – when you have similar cover with several insurers – complicates a claim. You should carry out an annual review of your portfolio with your broker, to avoid having dual insurance.
Lesson #2: Know the limits of your cover – and the terms and conditions
Assumption is the mother of all foul-ups. It’s very important to know what you are covered for, and not.
For example, is your building (or aspects, such as the roof) regarded as “standard” or “non-standard” – the latter implying a higher risk factor, and therefore a higher premium? Importantly, does your cover accurately reflect your assets?
Also, do you understand the difference between a “partial loss” and a “total loss”? When it comes to quantifying your loss, a loss adjuster will look for elements that are still intact; if some walls or the foundation slab are intact, you will be covered for a partial loss only. And in that case, of course, average may apply if the total sum insured is inadequate.
Here’s something else to keep in mind: the land on which your home stands is not insurable, and you can only claim for the buildings and improvements on it. Improvements include paving, carports, pools, boundary walls and so on. Take care therefore not to over-insure your property based on its potential selling price, as you will not be able to claim more than the cost of rebuilding what was damaged.
Very importantly, your cover should take into account costs associated with rebuilding your beloved home, other than materials and construction. These include demolition costs and professional fees – the costs associated with experts such as architects and surveyors.
The example of the Southern Cape presents other potential problems in the event of a claim. With a disaster such as this, in which many people in the same location lose their homes, pressure is placed on the availability of building resources and contractors, which in turn may result in much higher costs. Even though you may believe you could rebuild your home for less than what a professional valuation suggests, don’t be tempted to work on lower building rates when insuring your property.
L esson #3: keep your important information safe
When it comes to the contents of your home, cover is always calculated according to replacement value. And for that, you need to be able to prove that you own certain items and what they are worth.
Previously, if your home went up in flames, chances were that you would have lost the very things you needed to prove your contents claim: receipts, photographs of the items and valuation certificates.
Now, of course, technology gives us options. One of them is to take photographs or a video of your household contents and their corresponding receipts, and store them in the cloud – and you can access them anytime. Similarly, there are many free home inventory apps available.
Also consider saving all your other valuable documentation, such as identity documents, electronically. Some people in the Southern Cape had to flee without them, and have had to go through the additional stress of proving their identity to gain access to funds.
If you don’t feel empowered to take the tech route, however, there are still more traditional options: get a professional valuator to do the job for you, or ask your broker or insurer to help you with an inventory checklist.
Even if you believe your assets are protected from theft they may not be immune to fire, so include them in the inventory (for example, the jewellery in your safe).
Lesson #4: Consult a broker
Consult an insurance broker for proper, correct advice around your home, liability and contents covers, and the correct values to insure at.
Your broker will assist you to understand what is required of you to fulfil your responsibilities according to your policy wording, so that you will ultimately be able to return to the position you were in before any loss.
But when people take out insurance, they often don’t consider the worst-case scenario. This is why many properties are underinsured – people hedge their bets, hoping that they can get away with lower premiums.
Sadly, some people in the Southern Cape apparently didn’t think they would ever have to deal with a worst-case situation. But now they have, and replacing the roof over their heads will prove to be challenging.
As career insurance people, it is our job to help people recover from loss, and we realise the positive impact we can have on rehabilitating devastated communities such as those in the Southern Cape. But just as we have a responsibility to our policyholders to make things right, they have one to us: to make sure their insurance cover is correct and proper.
If you’re not absolutely certain that your insurance cover is all that it should be, speak to your broker or insurer today. You’ll have peace of mind now, and should the worst happen.
? Arie de Ridder is the head of claims and Delouise Marais is the head of Hollard Personal Lines at Hollard Broker Markets, the short-term insurance division of the Hollard Insurance Company Ltd
