The impact of higher-than-normal inf lation has been felt across international markets, with many first-world economies struggling to adapt to inf lation levels exceeding 2%. In contrast, South Africa has been living with relatively high inf lation rates and is accustomed to managing the increased cost of repairs and parts. However, it is now clear that these costs have increased sharply in recent times, and insurers must take this into account when pricing any risks, says Mike Brews, director at Horizon Underwriting Managers.The rising inf lation levels have had a significant impact on the global economy, leading to increased prices for goods and services. This has been particularly challenging for countries with lower inf lation rates, as they are not used to managing such high levels. However, South Africa has been grappling with inf lation for some time, and the insurance sector has been relatively resilient in dealing with the increased costs associated with repairs and parts.“Individuals and companies alike, however, are feeling the squeeze on their cash f low, leading to knock-on effects on their insurance claims,” says Brews. “Policyholders are more likely to submit claims for any loss, regardless of the size of the claim, when their finances are under pressure. This then increases the claim frequency and loss ratios, which in turn puts upward pressure on premiums and may limit coverage options.Moreover, says Brews, insurers have become far more cynical as fraudulent claims have increased. When cash f low is tight, some policyholders may be tempted to exaggerate or fabricate claims in the hopes of receiving a larger payout. This creates a significant financial burden for insurers, which may ultimately be passed on to policyholders in the form of higher premiums.
