The Ripple Effect: How a Volatile Rand Can Impact Your Insurance Cover 

The Ripple Effect: How a Volatile Rand Can Impact Your Insurance Cover 

South Africa’s currency, the rand, is among the most volatile emerging market currencies, frequently swayed by global interest rates, domestic politics, and investor sentiment. While this fluctuation may seem abstract to the average policyholder, its impact on insurance cover is tangible—and potentially costly. 

At the core of the issue is the reliance on imports in South Africa’s economy. Many insurable assets—cars, electronics, machinery, and even building materials—are sourced or priced in foreign currencies. When the rand weakens sharply against the dollar, euro, or yen, the cost of replacing or repairing those assets surges. Insurers must adjust their replacement value calculations accordingly, which can lead to a rise in premiums or, worse, underinsurance if clients haven’t reviewed and updated their policies (Santam, 2024). 

Take vehicle insurance as a key example. A policyholder with comprehensive cover for an imported car may discover that, after a sharp depreciation in the rand, the original insured value no longer reflects the current replacement cost. If the policy hasn’t been revised to account for currency changes, the payout in the event of theft or loss may fall short—leaving the client financially exposed. 

This risk extends to building and home contents insurance as well. Imported materials like tiles, fixtures, or even certain appliances will cost more to replace when the rand dips. If your sum insured hasn’t been adjusted to reflect these increased costs, you may be underinsured without knowing it. Insurers in South Africa typically review and adjust premiums annually, but in times of heightened volatility, this may not be enough. 

The currency’s impact also trickles down to reinsurance, the insurance that insurers themselves buy to mitigate large-scale risks. South African insurers often pay their reinsurance premiums in foreign currency. A weaker rand inflates these costs, putting pressure on local insurers and potentially leading to premium hikes for policyholders to offset the burden (FSCA, 2023). 

While volatility is part of the financial landscape, being proactive is essential. Policyholders should regularly review their coverage values and speak to their brokers about exchange-rate-sensitive risks, especially for high-value or imported assets. Some insurers offer inflation-linked or index-adjusted cover, which may provide more flexibility in a fluctuating currency environment. 

Ultimately, a volatile rand isn’t just a concern for currency traders or economists—it matters for every individual and business with insurance cover. Staying informed and adjusting policies as necessary ensures you’re protected when it matters most. 

References: 

• Santam. (2024). Currency Volatility and Its Impact on Insurance Claims. Retrieved from https://www.santam.co.za 
• Financial Sector Conduct Authority (FSCA). (2023). Trends in Reinsurance and the Effects of Currency Exposure. Retrieved from https://www.fsca.co.za