As Botswana Insurance Company, we have noted an increase in the number of policy holders being impacted by the application of the average clause in recent claims pay outs. The “Average Clause” is directly linked to the under insurance of a risk, which is impacted through lower than market valuations of assets, such as motor vehicles, properties and equipment. It is now evident, that the replacement and repair costs of these assets has significantly increased. 

As of July 2022, the Botswana Inflation Rate reached 14.3%, the highest recorded since 2009. The increase in inflation, linked with the Covid tailwinds effect and the global instability created by the conflict in Ukraine, has seen a significant disruption in supply chain and an unprecedent increase in the cost of motor spares and construction materials. 

In some cases, the cost of motor spares has increased as high as 27,5% with Toyota reflecting 19% increase between April and June 2022. Due to supply chain disruptions, the waiting periods for parts supply have been longer than normal. 

In the construction industry, building materials have also been impacted by high inflation resulting in the replacement of buildings and houses being impacted by significantly higher building costs per square meter. We have recently noted a number of real estate valuations showing replacement value much higher than market value.

To soften the inflationary impact on policy holders, BIC considered several new approaches, and will continually endeavour to mitigate the unsustainable and inevitable increase in premiums.  In addition, during COVID, BIC was the first Insurer to provide premium relief of up to 30% to its policy holders due to the lower claims events experienced during that time.

The current economic factors have unfortunately left our policy holders potentially exposed to under insurance, where the impact of Average could be applied at claims stage, and in addition, the replacement of an item may not be possible due to the increased market values and or replacement cost. Both scenarios would result in a financial loss position to customers who would need to replace their vehicles or rebuild their homes. 

There could also be a further impact to the client if these assets are financed via the banks, where the under insurance would create a settlement gap should the vehicle be written off or the home totally destroyed by fire. This finance gap is a risk we need to manage together with our partners and our customers. 

Given the risk to customers being under insured and the need to protect policy holder funds, BIC has taken the decision to increase policy holder “Sums Insured” by 10% effective 1 October 2022 for those policies that do not have an inflation index clause. We believe that this should significantly reduce the current economic risks encountered in the market. 

Be that as it may, it remains the Insured’s responsibility to ensure that you / they are adequately insured, and we urge you to discuss this with your client / broker, agent or representative. Should you not agree with this approach, or advice given by your broker, agent or representative, please notify us of your objection prior to the effective date so that your policy is exempted. 

As the “Market Leader” in Short Term Insurance, we remain committed to providing you, the intermediary, as well as the policy holders, the very best in Insurance Solutions and Customer Service and remain driven by “Making Life Better” for all our Stakeholders.

Yours Faithfully

         
Newton Jazire
Group Chief Executive Officer