Viviene Pearson, Chief Executive of the South African Insurance Association (SAIA) – the representative body of the short-term insurance industry, has expressed SAIA’s concerns about the effect the country’s recent downgrade to junk status will have on the short-term insurance industry and the consumer.
Pearson said that the ratings downgrade by both Standard and Poor’s (S & P) and Moody’s, will greatly affect the short-term industry.
Junk status effectively means our country becomes a defaulting risk, because it can’t pay back what it has borrowed, or pay back the interest on the debt.
Generally, the better a country’s credit-rating, the cheaper it can borrow funds in the global capital markets. In stark contrast, it will be more expensive for South Africa to borrow globally. This downgrade will lead to job losses, increased inflation and high interest rates. This will all filter down to the end-user - the consumer, further exacerbating the pressure on the cost of living.
The downgrade saw the rand plummeting in value against major currencies. For the short-term insurance industry, the cost of motor parts, which are mostly imported, will greatly increase. Even some cars that are assembled locally have parts imported from foreign countries. The repair costs will likely increase, followed by increased premiums for the policyholder.
Consumers may see insurance as a luxury or more of a grudge purchase than a necessity. Some consumers may become tempted to cancel their insurance policies. However, this leaves them exposed to greater financial risk should anything untoward happen to their possessions.
Tempted to cancel your insurance?
Everywhere you look in South Africa, there’s more dire news about the country’s credit rating and the negative effects it will have on your pocket.
Higher food prices, fuel levy increases, greater interest rates are all triggers that will cause any savvy consumer to cut back on household expenses.
It is, however, vital to cut back on the correct costs. While cutting back on your insurance might look advantageous and give you instant gratification, SAIA has advised that costs for repairs will increase. In the unfortunate event a fire breaks out in your home or your car is stolen, the cost to replace these items out of pocket will be severe. Insurance is still an absolute necessity, even in these turbulent times. It can keep you from getting further into debt, especially with the imminent increase in the interest rates.
If you’re a graduate professional in possession of a four-year qualifying degree, talk to us at PPS STI about tailor-made insurance. We solely serve the graduate professional, and this experienced specificity allows us greater flexibility in meeting your needs in any economic climate. Contact us at PPS Short-Term Insurance today and get the insurance you deserve.
PPS STI is a licensed financial services provider.