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Wealth trends to watch in 2023

Wealth trends to watch in 2023
25-10-22 / Tau kaVodloza

Wealth trends to watch in 2023

Johannesburg - The world's wealthy have a reputation for adding to their fortunes during crisis, as evidenced by huge jumps in the net worth of the likes of Jeff Bezos and Elon Musk through the 2020-21 COVID-19 pandemic. Now, with the world economy headed for a likely recession in 2023, high net worth individuals (HNWI) are aiming to continue growing and protecting their wealth.

"The 2022 trends of HNWIs diversifying their asset portfolios by buying property offshore and snapping up luxury brands are likely to continue," says Tarina Vlok, MD of Elite Risk Acceptances, a subsidiary of Old Mutual Insure.

Just this week Rolls-Royce announced the price tag of its first electric vehicle, the Spectre at $413,000 or R7.5-million. It is the most expensive EV coupé on the market, yet there have already been more than 300 US buyers putting down deposits.  Similarly, the latest results from luxury brands Louis Vuitton and Ferrari show an explosion in sales.

"However, against this climate, there are several trends playing out that make insurance complex. It is worthwhile for the affluent to account for this in their wealth plans and protecting their assets in 2023."

According to the Africa Wealth Report 2022, published by Henley Global, private wealth held on the continent will rise by 38% over the next decade, with many families investing in offshore real estate to diversify their asset portfolios. Second homes are seen as a great hedge against inflationary pressures. The report also says that the affluent are buying residency by investment, which has become an optimal way for families to protect their futures, rather than to move away from their country of residence due to political or socio-economic challenges.

Against this background, she encourages HNWIs to look for local insurance brokers that have knowledge of the country in which their assets are located due to the vagaries of the insurance laws in different jurisdictions. Similarly, she says if the children of the HNWI individual are studying abroad, it is also important to insure the assets in that country.

"Remember that you cannot add foreign assets to your South African insurance policy," says Vlok, highlighting the misconception that a locally issued all-risks policy covers the assets used by the insured's children while they study abroad. "All-risk's cover is designed to protect personal items when insureds leave the country temporarily, for a business trip or holiday," she says.

Another trend is that of semi-gration, where many HNWIs are moving to coastal towns, such as the Whale and West Coasts and the Garden Route.

"There is often a big premium to pay on properties in these areas, so it is best to insure homes at replacement rather than market value. If you are moving to a remote area, remember to choose an insurer who has suppliers that has the capacity to repair or replace assets in remote areas," says Vlok.

HNWIs must also appreciate the potential limitations following loss or damage to expensive – and often rare – items.

"It may seem simple to insure your ZAR1 million watch or ZAR4 million exotic vehicle, but it can be almost impossible to replace some of these items like-for-like, especially given the current world economy's supply chain shortages and disruptions," says Vlok, adding that HNWIs often prefer replacement over cash settlement in these instances, but this is not always possible.

"Consider choosing a specialist insurer who are aware of the complexities around the replacement or repair of luxury items in today's climate."

Events that are shaping the South African economy in 2023, that also highlight the complex and evolving nature of insurance, are loadshedding and consequent power surge damages; households investing cash to go off grid; and climate risk and weather-related losses.

"Each of these trends requires tweaks to the HNWI's short-term insurance policy," says Vlok.

As an example, she says changing weather patterns are translating into an increase in frequency and severity of weather-related claims. Cars and homes are most at risk to flood and storm, so HNWIs must ensure they have location-appropriate cover for these assets and consult with their insurers about any risk mitigation measures that may be required. Similarly, she suggests HNWIs use appropriate service providers with the right certifications and qualifications if installing back-up power supplies to hedge against loadshedding.

"This is why it is very important to work with specialist insurers in today's climate. To remain adequately insured, talk to your broker about higher excesses or reducing certain covers," she concludes.

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