South Africans are unfortunately notoriously bad savers. A recent study showed that less than 30% of people save toward an emergency fund for when something unexpected – and costly – occurs. For young people specifically, who are still building up their financial means, not having a fall-back for when things go wrong could be seriously costly.
This is according to Marius Kemp, Head of Personal Lines Underwriting at leading insurer Santam, who says that National Youth Month presents a good opportunity to remind people about the value of insurance and the freedom it provides for peace of mind. “Insurance is traditionally seen as a grudge purchase, particularly amongst 18- to 25-year-olds who are starting their exciting career and financial journeys”.
“Coupled with this, most South Africans do not have a ‘rainy day fund’ for emergencies. Typically, most young people who are still working on starting to build savings, would not have R20 000 to R100 000 (or more) saved up and waiting to cover the cost of vehicle damages following an accident or paying for another third-party vehicle, or to cover theft or damages to assets and movable items such as laptops and high-end mobile phones. Arguably, young people need insurance even more than more established adults with a nest egg”.
Kemp explains that young people need insurance in order to protect their assets, have protection from legal liability and to build an insurance profile as they are in the beginning journey of their lives. “This is especially important because, in general, younger individuals are perceived as a slightly higher risk - depending on which phase of their lives they are in. Starting to build a good insurance profile early on will be beneficial – much like a good credit history. It may also help to bring down premiums in the longer term, which are typically higher amongst 18 to 25 year olds due to the higher risk profile.”
Speaking about factors that are considered when determining an individual’s risk profile, Kemp says that previous claims history is very important. He adds that specific client profile data such as age, location and security measures of the risk, size of insured assets in terms of value, and the type of insured items especially related to vehicles are all considered by insurers.
According to claims trends from Santam, young people primarily tend to claim for house contents, personal effects such as portable technological equipment (including cell phones and laptops) and vehicle claims.
“The frequency and severity of vehicle claims for young people (18 – 25) are much higher than older clients. We would suggest that young drivers take out products that help to promote good driver behaviour where they can monitor and strive to improve their day-to-day driving.”
To improve their risk profile and possibly bring down their monthly premiums Kemp suggests that young people:
- Opt for a voluntary excess to bring down premiums;
- Beef up home and general security to be better than the minimum required;
- Install a telematics device which can also help reduce the vehicle premiums;
- Keep claims to minimum by self-insuring the low value claims would result in a lower premium increase at renewal.
When comparing insurance policies from different insurers, Kemp urges young South Africans to ensure they are comparing apples with apples. “Looking carefully at excess structure, type of cover provided, value added services, claim overturn ratio, and reputable claim paying record especially in terms of widespread catastrophes is critical when deciding on an insurer.”
He concludes that brokers have sound knowledge of the insurance environment – and the specific needs of young people. “A good insurance broker will give good advice on insurance matters to help you secure a product that fits into your life and budget and - most importantly - gives you the freedom to seize life’s opportunities”.
PERSONAL FINANCE