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Mar 2024

Egypt: High inflation prompts insurance clients to revalue assets

Source: Middle East Insurance Review | Jun 2022

Insurance clients have started to revalue their insured assets to avoid the application of the proportionality rule in the wake of a weakening Egyptian pound and high inflation.
 
The Financial Regulatory Authority, the Insurance Federation of Egypt, insurance companies and insurance brokers have been urging customers to revalue their assets, reported Al Mal News. This is because the insured sum stipulated in the insurance policy would have become smaller than the market value of the assets.
 
Misr Takaful Insurance head of claims (property and liability) Mostafa Hassan said the high inflation rate and the devaluation of the Egyptian pound have led to the emergence of the problem of proportionality because the insured sums covering the assets have become lower than their market value.
 
Mr Hassan pointed out that the major insurance branches affected by the asset revaluation are property and motor.
 
In addition, he said the effect of inflation is different on medical insurance because the health insurance policy stipulates an annual maximum coverage, to which the insurance company is committed. If the client files claims in which the total is equivalent to the annual insured sum before the end of the insurance period, the insurer’s liability is completed once the insured sum is exhausted. This means that medical insurance clients need to adjust their maximum annual coverage to take account of increases in the costs of medicines and medical supplies.
 
He stressed that the cost of the risk has increased as a result of inflation, and therefore the insured sums are increased, leading to clients having to pay higher premiums.
 
International Insurance Brokerage Company chairman Mohamed Hassan said that there is awareness among clients of the importance of revaluing their assets because of the experience garnered in the wake of the flotation of the Egyptian pound in November 2009 that resulted in the local currency losing almost 50% of its value against the US dollar.
 
On 21 March 2022, the Central Bank of Egypt devalued the Egyptian currency by 14% from EGP15.7 ($0.85) to $1, where it had remained mostly steady for nearly 18 months. Since then, the Egyptian currency has lost nearly 16% of its value, trading at an average of EGP18.3 to the dollar. M 
 
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