You’ve heard the grumbles: a colleague pays more to insure his mountain bike than his car. A relative pays a quarter of her household insurance towards a laptop.
For most people, insurance is a grudge purchase. And yet, suitable insurance cover is an essential part of any financial plan and is invaluable in mitigating against events that can have dire financial consequences.
In general – using the monthly premium as a percentage of the value of the item as a metric – high value, portable possessions that are more susceptible to accidental damage and theft and that would be expensive to replace are the costliest to insure, says Precious Nduli, head of technical marketing at Discovery Insure.
“Consistently, the top two [most expensive] items are mobile phones and cameras. Everything else pales in comparison.”
According to Discovery Insure, a typical monthly premium for a top of the range new mobile phone selling for between R15 000 and R20 000 can be about R300. Older or cheaper phones would cost proportionally less, while cameras could attract a premium of around R50 where the retail price is roughly R6 000.
Attie Blaauw, head of underwriting at Santam, says some of the most expensive items to ensure are vehicles, cell phones and laptops.
With regard to these items, insurers normally either experience claims on a very frequent basis, or the average cost to repair or replace the item is relatively high compared to the value, he says.
Deanne van Doesburgh, head of product development at Hollard Insure, says because premiums are not just dependent on the type of item being insured, but also on the risk profile of the policyholder, it is difficult to say which assets are the most expensive to insure.
“Two policyholders insuring the exact same car could have wildly differing premiums because of factors such as age, claims history, geographical location and the like. However, policyholders generally find premiums for portable possessions such as cell phones, laptops and tablets, sunglasses, watches and jewellery relatively expensive.
“This is because the frequency of claims for such assets is relatively high, which in turn is because these items are carried around outside of a policyholder’s own house.”
Van Doesburgh says at a very basic level, insurance premiums are calculated using the likelihood of a claim occurring and the expected size of a claim when it does occur. Premiums also take into account expenses associated with putting a policy on the books and keeping it there, such as commission and administration costs.
“The expected likelihood and size of a claim are in turn determined by looking at past data [or] experience for different risk profiles. This usually involves using statistical modelling techniques.”
Nduli says apart from the higher frequency of claims related to mobile phones and cameras, these claims are often for the full insured value of the item. Typically, other items would attract claims that are only for a portion of the sum insured. A car claim for example is typically associated with partial accident damage and not a full write-off of the value of the car.
The below graph compares the frequency and severity of claims for mobile phones with claims for other portable possessions. Mobile phones have a 3.3 times higher frequency and a 46% higher severity (average claim amount) compared to other portable possessions (including jewellery and computer equipment).
General insurance principles would also apply to sports equipment.
Blaauw says if the equipment gets damaged a lot easier, is more attractive in terms of theft or expensive to replace, the insurance cost is also more expensive.
“The more regularly any type of sports item is used, the higher the likelihood of a claim as well. An expensive bicycle will mostly be bought be someone who will use it very regularly and competitively. It will be damaged more often or get stolen more often, whereas a cheap bicycle is mostly sitting in a garage with much lower risk – hence a rate difference even for one specific type of sports equipment.”
Blaauw says some mountain bikes retail in the region of R200 000, which means the value relative to many cars is relevant. In these instances, the bicycle often gets used as frequently as a vehicle.
“The previous claims history of the client can also influence the premium,” he says.
Bicycles are comparatively more expensive to insure than other sports equipment, Nduli adds, in particular because the carbon fibre frames are expensive to replace.
“In addition, in most instances there would also be a total loss because they would be stolen or not possible to repair. The cost is high due to the nature of its use.”
To try and limit the insurance spend on relatively expensive items, Blaauw says consumers can differentiate themselves by building their own proven claims experience. Most insurers now reward clients with some form of bonus or reduced premiums.
“Building a longer-term relationship with your insurer is key. The basic approach for any consumer should be to act as if not insured and try and ensure that you take reasonable action to reduce the likelihood of a loss,” he says.
Nduli says another option is to increase your excess, which is the first amount payable in the event of a claim.
“The act of increasing your excess is also a sign that you are more likely to look after your items, which means you are a better risk from an insurance perspective. Insurers typically reward clients for taking on a portion of their own risk.”