Insuring Small businesses 

According to analysts at McKinsey & Company, operational pressures may lead to 60 per cent of closures for South African small, medium and micro enterprises (SMMEs). SMMEs contribute to more than 20 per cent of GDP, and employ about 47 per cent of the workforce in South Africa – underscoring the need for financial security in the industry, according to the Bureau of Economic Research.

For SMMEs to grow sustainably and deliver on their role as the country’s economic engine, business owners need to take risk management very seriously. The unexpected can cripple a business in volatile markets, as we are currently experiencing.

All businesses face perils on their growth journey, such as floods that can damage stock, a fire that can destroy the premises or vehicle accidents can impact logistics and distribution, bringing a thriving business to a grinding halt.

We are already seeing an increase in weather-related perils as a result of climate change: earlier this year we saw the extensive damage to businesses and households alike as a result of devastating floods in KwaZulu-Natal.

Meeting risk

Against these risks, insuring business assets is a must – especially if you rely on motor vehicles, own a building, keep inventory or valuable contents on your premises, or are reliant on electronic equipment.

For a manufacturer, protecting valuable stock during storage or transportation is essential. The priority for a motor fleet owner, on the other hand, is comprehensive cover protecting specialist vehicles against accidents, theft or liability.

A business also needs to be covered for third-party liability, which protects an enterprise from the risks imposed by lawsuits and similar claims.

It is essential to understand whether a particular business needs property damage cover, fire insurance, business interruption cover, comprehensive motor insurance, legal liability or third-party cover, financial risk support, or theft, fraud or employee dishonesty protection – or any combinations of these.

Regardless of their circumstances or type of venture, small business owners work under high pressure and have fewer margins for error, especially as technology, distribution and consumption patterns and priorities alter. Today, the cost of repair or replacement could be a major setback. Loss of profits can make it even more difficult to pay off loan instalments, retain cash for investment or meet other business commitments.

 Special state cover

In 2021 we also saw how damage caused by civil unrest in parts of Gauteng and KwaZulu-Natal resulted in major setbacks to businesses. For this, South Africa has a state-owned special risks insurer, Sasria, that operates independently to cover businesses against losses caused by civil commotion, public disorder, strikes, riots and terrorism.

Recent events have proved how important it is that consumers and businesses insist on Sasria cover. While no one may have foreseen an event of such magnitude, the point of insurance is to protect one against risk. Sasria cover is “sold” as an optional add-on to an existing commercial or personal insurance policy. The cover is cheap relative to the premium on the main contract, so many businesses sign on. Those that do not have insurance, and most of those who have an insurance policy without the special risks add-on, will have to foot their losses themselves, or turn to government for help.

Insurance and franchising

Small businesses or entrepreneurs who are looking to take their business to the next level may be considering franchising, which can be an effective way to expand a company. It may be helpful to know that from an insurer’s perspective, franchisees are generally considered less risky than their smaller, stand-alone business counterparts.

As risks become more complex and costs grow, we urge SMMEs to consult professional brokers to determine where to place their hard-earned money to safeguard themselves against possible harm. As the choices are overwhelming, comprehensive and effective small business cover can only be achieved with brokers who are qualified and experienced in specific industries, fields, services or types of businesses. 

By managing risk through proper insurance cover, SMMEs can ensure that they remain profitable and sustainable through potentially devastating setbacks.