Impact of currency fluctuation on insurance cover

Currency fluctuation has affected both business and domestic insurance values. Businesses that have plant or machinery, imported spares, electronic or diagnostic equipment and computer equipment to name but a few will be affected.  Diagnostic equipment used by the medical profession will be impacted by the fluctuation but hopefully any increased costs of medical services will only be felt at the next revision of medical aid tariffs.

With marine insurance one needs to evaluate the Bottom and Location Limits provided by the policy as this currency fluctuation might cause the value of shipments to exceed the policy limits.

On our domestic policies kitchen appliances, furniture, TV and sound equipment,  binoculars,  jewellery and watches (the gold price has surged and this exacerbates the exchange implication), computer and electronic equipment are some examples of affected items. It is probable that there will be a knock on effect from local manufacturers who use imported machinery in their production process.

In terms of your buildings insurance items like alarm systems, lighting,  imported wood finishes, tiles, granite, air-conditioning, electronic distribution boards and plumbing supplies will be affected and even the nuts and bolts fastening roof timbers might have increased by 20% during the period in question.

One unknown effect on sums insured is any surge in price due to shortages created by interruption of foreign supply. We might also experience companies increasing prices due to a loss of revenue during the lockdown period or pricing in anticipation of shortages.

If we were to use a different period for this Rand/US$ fluctuation illustration or a different currency,  the results could be different but in essence it is crucial to assess the adequacy of sums insured to avoid under insurance in the event of a loss.

You can refer to the below Rand/US$ table and graph (Courtesy SA Reserve Bank).

This illustrates in part the impact the exchange rates have had on the rand value of our assets and it is evident that the value of machinery and equipment and other imported assets has increased by approximately 20% in the period 25/2/2020 to 3/4/2020 alone.

Rand per US Dollar
Weighted average of the banks’ daily rates at approximately 10:30 am. Weights are based on the banks’ foreign exchange transactions.
Date Value
2020-04-03 18.7096
2020-04-02 18.2113
2020-04-01 18.0283
2020-03-31 17.9822
2020-03-30 17.8226
2020-03-27 17.5046
2020-03-26 17.4915
2020-03-25 17.3437
2020-03-24 17.7233
2020-03-23 17.8108
2020-03-20 17.1939
2020-03-19 17.3757
2020-03-18 16.7717
2020-03-17 16.5498
2020-03-16 16.6289
2020-03-13 16.3201
2020-03-12 16.4264
2020-03-11 16.0714
2020-03-10 15.9082
2020-03-09 16.1815
2020-03-06 15.5874
2020-03-05 15.3336
2020-03-04 15.3659
2020-03-03 15.5337
2020-03-02 15.5255
2020-02-28 15.6171
2020-02-27 15.2974
2020-02-26 15.2421
2020-02-25 15.0972
Rand per Euro
Weighted average of the banks’ daily rates at approximately 10:30 am. Weights are based on the banks’ foreign exchange transactions.
Date Value
2020-04-03 20.2045
2020-04-02 19.8950
2020-04-01 19.7465
2020-03-31 19.7723
2020-03-30 19.7358
2020-03-27 19.2971
2020-03-26 19.1113
2020-03-25 18.7693
2020-03-24 19.2067
2020-03-23 19.0700
2020-03-20 18.5402
2020-03-19 18.8918
2020-03-18 18.3952
2020-03-17 18.4232
2020-03-16 18.6294
2020-03-13 18.2606
2020-03-12 18.5027
2020-03-11 18.2056
2020-03-10 18.1154
2020-03-09 18.4955
2020-03-06 17.5577
2020-03-05 17.0602
2020-03-04 17.1699
2020-03-03 17.2781
2020-03-02 17.2147
2020-02-28 17.2170
2020-02-27 16.7338
2020-02-26 16.5842
2020-02-25 16.4009