24 Apr 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.