In the midst of a persistently weakened economy, high-net-worth individuals (HNWIs) in South Africa are navigating their spending patterns with a renewed emphasis on quality, sustainability, and cautious investments. The economic downturn has prompted a shift towards prudent acquisitions and alternative asset classes, marking a notable change in the way affluent individuals manage their wealth.
Tarina Vlok, Managing Director of Elite Risk Acceptances, a specialized insurer catering to high-net-worth individuals, highlighted the evolving behavior within this demographic. “The sluggish economy is fostering a trend toward frugality among HNWIs. While they possess the means, they are opting for fewer possessions of higher quality,” noted Vlok.
One significant shift is evident in the surge of the second-hand luxury market, driven by an increased focus on sustainability and responsible consumption. Vlok emphasized the importance of efficient insurance coverage for affluent individuals, particularly in light of investments in unique, high-value items susceptible to supply disruptions and theft.
“There’s a growing inclination towards alternative assets such as classic cars and high-end jewelry, notably watches. However, due to the remnants of COVID-19 supply chain disruptions, acquiring these unique items poses risks. Insurers may not honor claims for items that were initially stolen,” cautioned Vlok.
Moreover, Vlok acknowledged the trend of semigration, which presents opportunities for investment in previously underserved areas such as the Whale Coast, Western Cape Winelands, Garden Route, and West Coast. Acquiring properties in remote eco-estates, although appealing, can pose challenges during reinstatement processes following damages, owing to limited service providers in these areas.
HNWIs with assets abroad face additional considerations, as insurance claims may not be honored by South African-based insurers for possessions situated in foreign countries. Vlok recommended seeking insurance from providers based in the respective countries to safeguard against potential losses.
Furthermore, with South Africa grappling with energy supply issues and recurring load shedding, there has been a notable surge in alternative power systems among HNWIs. Going off the grid is seen as a viable solution to offset electricity costs while ensuring uninterrupted power supply, potentially adding substantial value to properties. However, Vlok emphasized the necessity of expert installation for backup and alternative power generation systems to avoid potential hazards.
The rise in online transactions, coupled with the shift towards remote and hybrid work models, has amplified the risk of fraudulent activities for HNWIs. Vlok urged vigilance and caution during online interactions and transactions, highlighting the increasing vulnerability of businesses to cyber threats. Notably, specialized cyber insurance products are available, yet not all insurers may offer coverage for such risks.
As South African high-net-worth individuals adapt to economic challenges, their prudent spending habits, emphasis on quality, sustainability, cautious investments, and awareness of potential risks continue to shape their financial strategies in an ever-evolving landscape.