by News recently broke about South Africa being downgraded to junk status by S&P, sending the country into a tailspin. A few days later, Fitch Ratings unsurprisingly also moved to downgrade the country. The downgrade came after the reshuffling of the Cabinet by President Zuma who unceremoniously fired Finance Minister, Pravin Gordhan. The sacking, as well as the blatant disregard for the countries stability, drew anger from the South African population and millions took to the streets protesting the actions of the countries leader.
The downgrade in particular has had ripple effects on the population. Consumers, as well as businesses, have been warned of the dire effects of the downgrade on their pockets. Not only will interest rates be increased, food prices heightened and taxes possibly intensified, but insurance is expected to soar.
Short Term Insurance Is Expected To Be Hit Hardest
South African Insurance Association’s (SAIA) chief executive, Viviene Pearson, has warned of a surge in car insurance premiums. Car manufacturers currently import the majority of parts for cars. Due to the junk status being imposed, and the increase in import tax, the cost of this will jump dramatically. This will then have a knock-on effect and increase the costs of services and repairs. Insurers will, ultimately, start increasing premiums for their policyholders and, possibly, increase excesses too. This is set to hit the consumer hard due to the rise in general living expenses.
“This could expose consumers to financial risks in the event of a loss or damage to assets. Furthermore‚ motor body repairers, the building industry and others‚ will feel the pinch of less work‚ leading to job losses,” said Pearson.
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Bad News During a Bad Time
This is devastating news for the industry, as the country is currently weighed down by the slowest growth since the 2009 recession. With heightened taxes, higher living expenses, and soaring interest rates, cash-strapped South Africans are expected to start making severe cutbacks. Expected among these cut-backs are insurance costs.
Analysts warn that one of the first expenses to be dropped will be insurance. This, however, could hit the pocket the hardest. There are currently over 45% of cars on the road uninsured. With another 7-8% looking to cancel in the next year, an accident could be financial demise. Car accidents without insurance could potentially ruin you if you are involved in an accident with another car and have to cover the costs of both vehicles.
South Africans are encouraged to maintain their insurance policies and, should they need to, rather look into options of reducing monthly premiums. It will ultimately be cheaper should the worst happen.
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