The underinsurance crisis - why so many South Africans are at risk

South Africans are dangerously underinsured, and the consequences can be financially devastating. Whether it’s damage to a home, loss of personal belongings, or major agricultural losses, too many individuals only discover coverage gaps when it’s far too late.

In many cases, policies don’t reflect the true value of assets. As a result, policyholders end up out of pocket when they need help the most. At the heart of the underinsurance crisis are two key problems. First, a widespread lack of understanding about how insurance works. Second, a deep mistrust in the industry itself.

For many South Africans, insurance feels like a luxury. However, the risk of being underinsured or not insured at all, is far more costly in the long run. One incorrect calculation or overlooked item can lead to a reduced payout, an inability to replace vital equipment, or even insolvency.

The underinsurance crisis – unpacking real risks

When a business suffers a fire, flood or theft, under-declaring asset values or using outdated figures leads to partial payouts.

Even more concerning is underinsurance in business interruption cover. Many clients default to accounting gross profit instead of the correct insurance definition. This mistake creates the biggest coverage gaps and the most significant claim shortfalls.

To make matters worse, many businesses rely on outdated asset registers. Others try to save costs by omitting VAT, sometimes intentionally, sometimes not, or forget to include new equipment. These omissions can result in catastrophic financial implications.

The underinsurance crisis isn’t limited to businesses. On the personal side, many individuals insure items at their original purchase price or depreciated accounting value, rather than at their current replacement cost.

People often don’t realise they should insure fixed assets at replacement value, vehicles at retail value plus extras and movable equipment at market value. This can be confusing, even for financially savvy clients, which is why having a trusted broker is essential.

Why insurance values go stale fast

Inflation and rapid technological change drive up the cost of replacing assets every year. While insurers typically apply inflationary increases of 6% to 15%, it remains the insured’s responsibility to ensure their cover keeps pace.

To address the underinsurance crisis, we recommend conducting an on-site valuation every three years. In the interim, a desktop valuation is advisable. If you’re uncertain, slightly over-insuring is always a safer bet. The difference in premium is often negligible, but the impact on a claim can be massive.

The underinsurance crisis – bridging the knowledge gap

Despite some insurers’ efforts to simplify policy language, insurance remains a minefield for many. Fine print, technical jargon and complex conditions leave people unsure of what they’re actually covered for. That’s why brokers aren’t just helpful, they’re essential.

A good broker doesn’t merely sell a policy. They help clients apply it to their lives or businesses. This includes guiding them through declarations, recommending asset valuations, and calculating accurate business interruption figures. In short, brokers translate jargon into practical protection.

Even small administrative oversights, like forgetting to remove sold items or failing to add new purchases, can result in incorrect cover. These seemingly minor errors can lead to costly consequences. That’s why the annual renewal period is more than a formality. It’s a critical moment to reassess and ensure that sums insured still reflect reality.

In today’s tough economy, it may feel tempting to cut insurance costs. However, trimming cover to save money now could lead to devastating financial losses later. The underinsurance crisis demands a proactive response. Now is the time for individuals and businesses to examine their risk exposure and ensure they’re truly protected, before it’s too late.