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Sellers are smiling but insurance providers must keep watch on the rise in asset values

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James Burton, senior director of product management, LexisNexis Risk Solutions

There is no doubting that it is a seller’s market in the U.K., with average house prices 10.4% higher in February 2022 compared to the same time last year[i]. Meanwhile, second-hand cars have witnessed a 30% price increase in a year[ii] and there has been a 11.5% rise in used vehicle transactions[iii]. This all has the knock-on effect of rising claims costs for insurers. With the average amount paid for damage to policyholder’s vehicles rising 59% between 2015 and 2020[iv] and household insurance providers facing the double blow of climbing property values and more extreme weather events, it’s become vital that insurance providers have access to real-time data on the assets they are insuring, at the point of quote.

So, what is causing such massive inflation in asset values and is it going to last? A mismatch between supply and demand in the housing market; supply chain issues causing a shortage of certain building materials and the anticipated 54% rise in the energy price cap[v] increasing the cost of those materials are conspiring to increase home repair costs as well as home values. Add to this the increasing scale and regularity of extreme weather events, including floods and storms. The number of claims from weather losses almost doubled in 2020 vs 2019 by 89%.[vi]

Meanwhile, in the motor insurance market, it is the semiconductor shortage that has caused the imbalance in supply and demand in the car and commercial vehicle market, and the consequent increase in used vehicle values. As factories closed during the pandemic, supply ran short and vehicle manufacturers fought for highly sought-after semiconductor chips, alongside manufacturers of gaming consoles and home working tech. This led to the massive reduction in new car manufacture and knock-on impact on the used vehicle market.

Yet there were other contributors to the rise in cost of motor claims. While the pandemic lead to a decline in motor claims overall and fraud[vii], evidence shows that while cars were off the road, opportunistic thieves were making the most of the situation. Indeed, data collected by the ABI shows that theft from vehicles and theft of vehicles remained at a consistent level from 2019. There were 61,000 theft claims in 2019 and 60,000 in 2020 – notably, these are the highest figures recorded to date.

Knowing more about the risk at quote means insurance providers can price more accurately based on the likelihood of a claim arising and the cost to settle that claim. The value of the asset and the cost to repair or replace is one part of the jigsaw in making that assessment but clearly with so much movement in the values of homes, vehicles and materials, keeping pace with these changes is key.

Fortunately, data innovations continue apace in the insurance market to anticipate and solve pain points such as this.  In motor, insurance providers can now benefit from streamlined access to vehicle valuations based on data from classified car ads, at the point of quote. This data is trusted by the Financial Ombudsman Service[viii], which uses it when settling vehicle claims disputes. Alongside valuations, insurance providers can also access mileage information and MOT status to build a more detailed picture of the value of the vehicle.

Data on the presence and performance of Advanced Driver Assistance Systems at a Vehicle Identification Number (VIN) level is a further unique innovation for the insurance market, bringing an extra layer of granularity to help insurance providers understand future claims risks and costs.

In home, data enrichment solutions now exist that combine multiple predictive attributes for an individual address from a variety of property characteristics. From rebuild cost to square footage and listed-building status to roof type, this data goes far beyond the information traditionally used or requested in the quote process, helping ensure a greater level of precision.

Vitally, data such as this, alongside additional data on the individual and the address flows into the quote process from one platform, streamlining how insurance providers access this data and deliver quotes to customers.

Asset-based data can also be used to pre-populate application forms, improving data accuracy, reducing customer friction and further speeding the delivery of quotes.

As we head into a period of price inflation, customers are going to pay increasing heed to service levels. A data platform that can help smooth the quote process, reduce referrals and consequentially hassle for the policyholder will help insurance providers deliver insurance cover that responds to the value of the risk presented today, not last week, last month, or last year and provide a fair and transparent price in the process.

[i] https://www.rightmove.co.uk/news/house-price-index/

[ii] https://inews.co.uk/inews-lifestyle/money/uks-best-selling-used-cars-why-you-will-pay-53-more-for-a-second-hand-astra-this-year-1508119

[iii] https://www.smmt.co.uk/category/vehicle-data/used-car-sales-data/

[iv] https://www.abi.org.uk/news/news-articles/2022/02/2021-motor-premium-tracker/ Between 2015 and 2020, the average amount paid for damage to policyholders’ vehicles increased by 59%

[v] https://commonslibrary.parliament.uk/research-briefings/cbp-9461/

[vi] Source: ABI

[vii] Source: ABI

[viii] https://www.data.cazoo.co.uk/solutions/insurance

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What happens to your investments after your death?

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By Jaco Prinsloo, certified financial planner at Alexforbes

Financial planning regarding the succession of investments is rarely carried out, at least in South Africa. As a result, potential heirs are often not sure what to do or where to start to claim and settle a loved ones investments. In many cases, the family is unaware of the existence of an investment portfolio. With succession planning, the transfer of assets (whether property, your bank accounts, cars or investments) is facilitated.

Today I want to focus on investment and the succession planning of investments, specifically discretionary investments, compulsory investments and policies. The type of investment will determine how the assets and proceeds get distributed, so we first need to look at the different investment types:

Discretionary investments

Discretionary investments are any investment you make with after tax money at your own discretion. Discretionary investments include:

  • Unit trusts
  • Money market accounts
  • Fixed deposits
  • South African retail bonds
  • Share portfolios
  • Tax free savings accounts

Jaco Prinsloo

These investments will form part of your estate and will be subject to estate duty and executor’s fees. However allthou a tax-free savings account forms part of your estate there are no executor’s fees payable. The proceeds from the investments will be distributed as per your Will to your nominated beneficiaries after your estate has been settled. Because these investments form part of your estate the investments will be “frozen” and no transaction or changes can be made to the investments until the proceeds are paid to the estate.

Investment and Life Policies

Life insurance is a type of insurance contract where you agree to pay premiums to keep your life cover active. If you pass away, the life insurance company will pay the life cover benefit directly to your nominated beneficiaries, which can be a person or your estate.

You also get investment policies like living annuities and endowment policies where the investment value pays to the nominated beneficiaries on your passing. One benefit of investment and life policies is that it does not form part of your estate, which means no estate duty and the proceeds get paid directly to your nominated beneficiaries giving them access to cash while they wait for the estate to be wind up. Making it an essential part of anyone’s overall financial plan.

Compulsory investments

Compulsory investments are investments which are compulsory with some employers. Working for some companies you might be required to be part of a provident or pension fund as part of your employment contract. Compulsory investments might also offer some tax benefits but investors have limited access to their money and these investments are governed by Regulation 28 stipulating where and how you can invest. Compulsory investments can be summarised as “retirement funds” and include:

  • Pension fund
  • Provident fund
  • Retirement annuity fund
  • Preservation funds

The proceeds from retirement funds are distributed as per Section 37C of the Pension Fund Act.

Which means the trustees of the fund will use their discretion to distribute the proceeds of your retirement savings to insure all dependents and beneficiaries receive equal and fair benefits. Belonging to a retirement fund you will be required to nominate beneficiaries but its important to remember the beneficiary nomination is seen as a guide to the trustees or a “wish list” and the ultimate decision on how the benefits get distributed lies with the trustees of the fund.

As shown above, it is important to keep your Will and nominated beneficiaries updated on your policies and retirement funds. So how to plan for succession?

The first step is to talk to your family members about your investments and the administrator of these investments. Secondly you can create an organised folder with all the documentation of your investments, policies, copy of your Will and personal documents like your ID copy and bank statements. Your family does not need to know the value of the investments but the knowledge of the investments and where to find all your important documents will make it easier for them to start the claim process. Speak to a certified financial planner for advice on your beneficiary nominations and to formalise your wishes in a document, thus setting up a will.

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YOUR PARTNER SHOULDN’T BE YOUR RETIREMENT PLAN

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By Buhle Langa, certified financial planner at Alexforbes

Financial independence is important during any person’s lifetime, at all stages.

By starting to plan for your retirement early in your working life, you can maintain your standard of living in your retirement years. While a life partner can be wonderful, they should not be considered as a part of your retirement plan as they may not even have saved sufficiently to meet their own requirements.

Women tend to live longer than men, and since research shows they generally earn less, this means that they need to save more, for longer, than their male counterparts.

It is important to familiarise yourself with how you were married and what the terms are should the marriage end either in divorce or death. If you are married in community of property, both you and your spouse’s assets will form part of your deceased estate and your spouse will automatically, by law, be entitled to 50% of the combined assets.

You can be married out of community of property with or without the accrual system. Being married without accrual is the easiest system to work with in your will and estate; your assets remain your own and you may deal with your assets as you wish with no claim from your surviving spouse.

Buhle Langa

Often, a home will be registered in one partner’s name while the other contributes to the bond repayments. If you are not married or are married out of community of property, ensure that you have a written cohabitation agreement. These financial contributions can be difficult to prove if the relationship ends, leaving the one partner with no claim to the property.

Having sufficient planning in place for both parties is always advisable, and each party should have their own savings and investments. A tax-free savings account is a great place to start, allowing you to save up to R36 000 a year without paying tax on the growth.

Increasing your contributions to your work retirement fund will help you accumulate larger savings for your retirement. To take advantage of the benefits of compound interest and avoid a hefty tax liability, it is also advised to keep your retirement savings invested when changing jobs. When leaving your employer, a number of tax-free options are available to you and one should seek financial advice in order to understand which of these is the best choice for you:

  • Transferring your savings to your new employer fund
  • Transferring your savings into a retirement annuity fund
  • Transferring your savings into a preservation fund
  • Keeping your funds invested within your previous employers retirement fund through a paid up status (not contributing further to the fund).

Each of the options noted have varying implications such as when you would be able to access the retirement funds either through resignation, dismissal or retirement and whether you are able to continue contributing towards the fund, therefore each individual person would need to seek financial advice from an accredited financial advisor so as to determine which option would best suit their individual needs.

Regular consultations with a certified financial planner will ensure that you are on track for a secure retirement.

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