Any business operation is vulnerable when faced by unplanned crises. The crippling and unexpected costs associated with these risks are often compounded by failure to protect the business adequately through appropriate short-term insurance.
Although the greatest losses are usually experienced when a business is not insured; under-insuring your business can prove to be just as detrimental.
Underinsurance is one of the most worrying challenges facing South African businesses. Generally, business owners often fall into a trap of underinsurance because they do not fully grasp the repercussions or do not have the time or expertise to navigate the wide spectrum of insurance products available. So how can you insure that you avoid the pitfalls?
- Choose the right insurance partner: Choose an insurer that has a good claims payout reputation and is financially secure enough to cover your risk.
- Identify all potential risks to your business, these could include:
- Natural perils (wind, storm, hail, lightning, flooding, etc.)
- Crime related perils (burglary, armed robberies, theft of vehicles/hijacking, etc.)
- Accidental damage (motor accidents, damage to computers, etc.)
- Legal liabilities (due to products being sold/repaired, motor accidents where the insured/driver is negligent, etc.)
- Evaluate these risks in terms of the likelihood of them happening and the potential size of the loss, for example:
- The likelihood of having a motor accident is high and the size of the loss would be medium to large (a vehicle being written off as well as damage to a third party’s vehicle/property)
- The likelihood of a fire at the premises is low, but the size of the loss would normally be high to extremely high.
- Consider your location and associated risks: Some commercial areas are more risky than others. If your business is located below the flood plain on the banks of a river, there is a high probability that you will suffer loss, and you need to make sure that you have sufficient cover to manage this risk. The same goes for areas that suffer higher levels of crime. If you don’t have a choice but to be at a specific location, you can still reduce your risk by implementing changes to protect yourself and your livelihood, including the addition of burglar bars or alarms if you’re in a high-crime area.
- Proactive risk management. Using the information above, a business owner should decide whether some of the risks can be eliminated or reduced.
- Installing an alarm and burglar bars reduces the likelihood and impact of potential burglaries.
- Arranging with suppliers to deliver stock instead of collecting your own eliminates the risk of loss or damage to goods while in transit.
- Prevent physical hazards that could lead to claims. Have your geyser, wiring and fire protection gear checked for leaks or damage on a regular basis, either by someone in the office or by a professional.
- Finance the residual risks (i.e. the risks that can’t be reduced to an acceptable level). The most common method of financing the residual risk is through dependable insurance, this would also be the most viable option for the small business owner.
- Insure your business for the appropriate amount: Many business owners are unaware whether they are over or under-insured. If you under-insure your business or assets, there is a chance that the payout you receive when claiming is lower. Ask your broker to help you assess your risks.
- Take advantage of the benefits derived from successful risk management: Insurance companies are more likely to reward customers that take risk management seriously. People and companies that are serious about managing their risk take stock of their assets, measure the potential risk and insure them for an appropriate amount. Being under-insured can also lead to lower insurance payouts when claiming. From time-to-time, savvy risk managers also check equipment like geysers, fire equipment and so forth for damage or faults that can lead to more severe damage.
- Ask for advice and communicate changes: If you’re not sure what to insure, ask your broker for advice on risk management. He or she will be able to advise you appropriately and save you valuable time to concentrate on building your business. If you make any changes to your business, including the installation of walls or fences, additional buildings, add another vehicle, and so forth, communicate these to your broker as soon as they happen.
Contact your broker for more information or call Santam on 0860 444 444
Information provided by Santam