By Lebogang Mashala

In a challenging economy, it might be tempting to reduce insurance costs. However, taking shortcuts can lead to much greater expenses in the long run. Both individuals and businesses should thoroughly assess their risk exposure and ensure they are truly protected when it matters most.

Many South Africans are at risk of being underinsured, which can result in severe financial consequences. Whether it involves damage to a home, loss of personal belongings, or significant agricultural losses, individuals often realise the gaps in their insurance coverage only when it is too late.

According to Jonathan Lindeque, Divisional Executive at Agriculture and Food at GIB Insurance Brokers, many policies do not reflect the true value of the insured assets, leaving policyholders financially vulnerable when they need assistance the most.

Lindeque pointed out that two main issues contribute to this problem: a widespread lack of understanding about how insurance works and a deep mistrust of the industry itself.

“Insurance feels like a luxury for many South Africans, but the risk of being underinsured or completely uninsured is much more costly in the long run. One incorrect calculation or overlooked item could result in a reduced payout, an inability to replace crucial equipment, or even insolvency,” Lindeque explained.

“If your business suffers from a fire, flood or theft and you’ve under-declared the value of your assets or used outdated figures, you will only receive a partial payout,” Lindeque explained. “Even more concerning is the issue of underinsurance in business interruption coverage. Clients often default to using gross profit from their accounting instead of the correct insurance definition, which leads to significant gaps in coverage and the highest claim shortfalls.”

Additionally, there is a widespread reliance on outdated asset registers, cost-saving measures that overlook VAT (whether intentionally or not), and a failure to account for new equipment. The consequences can be catastrophic for businesses.

On the personal side, many individuals mistakenly insure items based on their original purchase price or depreciated accounting value rather than their current replacement cost. “People often do not realise that they should be insuring their fixed assets at replacement value, vehicles at retail value plus extras, and movable equipment at market value,” Lindeque stated. “It can be confusing, even for financially savvy clients, which is why having a trusted broker is so important.”

Inflation and technological advances mean that the cost of replacing assets increases each year. While insurers typically apply inflationary increases between 6% and 15%, it remains the insured’s responsibility to ensure their coverage keeps pace.

“We recommend conducting an on-site valuation every three years, with a desktop valuation in the intervening years. If you are ever unsure, slightly over-insuring is always a safer option. The difference in premium is often negligible, but the impact on a claim can be substantial,” Lindeque added.

He noted that although some insurers have attempted to simplify policy language, insurance remains a complex landscape for many people. The fine print, technical jargon and complicated conditions often leave individuals uncertain about their actual coverage. This is why brokers are not just helpful but essential.

“A good insurance broker doesn’t just sell you a policy; they help you apply it to your life or business. From guiding clients through declarations to recommending asset valuations and accurately calculating business interruption figures, brokers translate jargon into practical protection,” emphasised Lindeque.

Even small administrative oversights, like forgetting to remove sold items or failing to add new purchases, can result in incorrect coverage with costly consequences. The annual renewal period is not just a formality; it is a crucial opportunity to reassess and ensure that your insured amounts still accurately reflect reality.

“In a challenging economy, it may be tempting to cut insurance costs, but taking shortcuts can be far more expensive in the long run. Now is the time for individuals and businesses to carefully evaluate their risk exposure and ensure they are genuinely protected when it matters most,” Lindeque stated.