What's Happening?

Insurance solutions to support resilient South African businesses



Small- and medium-sized enterprises (SMEs) are known to be key contributors to the South African economy. They represent more than 98% of businesses in the country, employ between 50% and 60% of the country’s workforce, and are responsible for 25% of job growth in the private sector. The total number of SMEs in South Africa is estimated to be as high as 3.4 million.

However, this sector faces challenges. At the start of the pandemic, many SMEs experienced a drop in demand. A McKinsey survey conducted at the end of March 2020 found that more than 80% of consumers surveyed were looking to decrease spending across all retail categories. Businesses were also pessimistic. Just over 33% of businesses surveyed in April 2020 said they were pessimistic about the economy and economic outlook.

Showing Resilience 

Despite challenges, South African businesses showed great resilience during the pandemic. Many had to find new ways of working and implement these in a very short period. From enabling their customers to order online to offering mobile services, business owners had to think out of the box.

During the pandemic, there was also a rise in total funding raised for start-ups. This capital injection fuelled growth in the SME sector. Africa saw an increase of 438% in capital raised from $757.3 million in 2020 to $4.08 billion in 2021. South Africa was number two in Africa in terms of securing funding for start-up businesses. A total of 110 South African companies raised venture capital in 2021.

Bringing Globally Recognised Innovations To Market

When faced with the challenges brought about by the COVID-19 pandemic, many entrepreneurs had to innovate. This innovation was recognised during the GSA (Global Start-up Awards) Africa 2021 regional finale, where South African start-ups won 8 awards.

The innovations coming out of South Africa align with the trends seen in the global market. According to a McKinsey SME report, after the COVID-19 crisis, more than 65% of payments will be done using cards or means requiring point-of-sale (POS) devices. This means local fintechs like iKhokha are ahead of the curve and able to assist SMEs get access to affordable digital payment methods. In December 2021, iKhokha processed over R1.2 billion in card payments and their transaction volumes increased by more than 100% year on year.

SMEs Need Business Support To Succeed

For these businesses to grow and succeed, they need more than the usual insurance protection that only provides a pay out if a claim event occurs. There is an increasing trend for insurance clients to demand solutions that address a social responsibility. For SMEs, we think such solutions will largely relate to business resources that help them become more sustainable and continue contributing to the country’s employment and economy. We therefore expect future solutions to be a combination of insurance protection and access to much needed business support.

Such solutions could include:

Access to essential resources that help the business grow, such as coaching, funding and management training.

Access to tools that help business owners get detailed insights into the physical and operational risks their business faces, so that they can address these risks and improve their business prospects.

Insurance packages that are tailored to different industries, because businesses in the same industry face the same risks and challenges. For example, giving fleet owners access to a fleet portal at no extra cost to help them monitor their vehicles and plan driver schedules more efficiently.

Insurance cover that considers newly emerging risks such as those resulting from increased adoption of digital payment systems. For example, automatically including cyber and reputational risks insurance cover against cyber attacks to digital payment systems and point-of-sale devices.

Insurers are well placed to create these solutions based on their experience and expertise in risk management. As these solutions address the needs of clients and their businesses, insurers can strengthen their relationship with their business insurance clients.