As we enter an era marked by ‘Spikeflation’, a term coined to denote periodic inflation spikes driven by structural changes, we at Ami Underwriting Managers (Ami) feel it is important that we understand the risks presented better. This new economic landscape, combined with the volatility of the Rand-Dollar exchange rate, presents unique risks, especially in the realm of personal insurance, including home, motor, art, and jewellery insurance.
‘Spikeflation’ is a new paradigm characterised by fluctuations in inflation rates due to factors like heightened geopolitical risk, underinvestment in fossil fuel capacity, and changes in global trade patterns. These variables, coupled with exchange rate volatility, can significantly impact the value of assets and insurance premiums.
Home Insurance: In the era of ‘Spikeflation’, the cost of rebuilding homes may see significant fluctuations due to variable inflation rates and the impacts of the Rand-Dollar exchange rate. If the cost of materials and labour increases, the amount needed for comprehensive home insurance coverage will also rise. Exchange rate volatility can further escalate these costs, especially for imported building materials. Consequently, the total cost of rebuilding a home, and therefore the amount of coverage needed, can increase significantly. We strongly urge our clients and brokers to regularly review home insurance policies to ensure they align with the current rebuilding costs, factoring in both ‘Spikeflation’ and exchange rate shifts in order to avoid the risk of underinsurance.
Motor Insurance: The motor industry is not exempt from ‘Spikeflation’. Changes in inflation rates can affect the costs of vehicle parts and labour, which could lead to higher repair costs in the event of a claim. The value of vehicles may also increase, necessitating higher coverage limits. A weaker Rand could exacerbate these increases by making imported vehicles and parts more expensive. We advise HNWIs to consider the dual impact of ‘Spikeflation’ and exchange rate fluctuations on their motor insurance policies.
Art Collection Insurance: Art collections can be particularly sensitive to economic changes and exchange rate shifts. ‘Spikeflation’ may inflate the value of certain artworks, increasing the potential financial risk in case of loss or damage. Importantly, for artworks sourced internationally, a weaker Rand could heighten these costs further.
Jewellery Insurance: The value of precious metals and gemstones, often influenced by international markets, can fluctuate significantly in response to ‘Spikeflation’. The Rand-Dollar exchange rate further impacts the local cost of jewellery. As a result, the replacement cost of insured jewellery can increase. We urge our clients and brokers to regularly reevaluate their jewellery insurance coverage in light of current market values and exchange rates, ensuring full coverage in the event of theft or damage.
We understand these are complex times, and the task of navigating ‘Spikeflation’ and exchange rate fluctuations can seem daunting. Rest assured, at Ami our team of experts is committed to providing comprehensive advice and guidance, helping you protect your cleints’ assets in these uncertain times.