Small and medium-sized enterprises (SMEs) play a major role in the South African economy and our president, Cyril Ramaphosa provided the SME sector with a major boost with finalisation of the R1.4 billion SME fund in March. The fund was started to support the development of selected SMEs and is led by some of the top business minds in the country. SMEs also create 60% of the jobs in the economy and will aid South Africa in decreasing the unemployment rate.
It is exciting to see the energy in the SME sector and support that it is receiving from big business. The significant growth of the SME sector in South Africa means that as the insurance industry, we too, need to adapt. We are required to unpack and understand the risks that small businesses may be exposed to, so that the risk assessments and products created to offer cover to these businesses offers them adequate protection.
All businesses, whether large corporates or small businesses, like the coffee shop around the corner need to be adequately protected against risks such fire and allied perils, crime classes of insurance and motor accidents. A standard commercial policy may provide the adequate cover, but does it suit the SME market?
With the current economic climate, certain covers are being overlooked as SME business owners are often the first to feel the pinch. When times are tough, the first expense foregone is the insurance cover. Business owners are looking to insure only the bare minimum to cover catastrophic incidents, like fire, as this is the maximum that their budgets allow for.
Working with a client based on their budget to determine what to leave out of their initial insurance policy, is not an easy task, however it is a key step in helping to service this sector of the economy which plays a significant role in the economy.
This analysis needs to be done by the broker with the client to highlight business critical risks. Often the major risks, like total loss/absolute catastrophe cover, would be the first to be insured and any additional cover would be left out. This all depends on the client’s budget and risk appetite. The broker should then highlight the risks involved from an insurance perspective in terms of what is and isn’t covered in the policy.
The best approach is firstly to insure SMEs against events that could force them out of business. Then to add insurance against the costly events or risks that may prevent smooth operations and disrupt business flow.
So, what does this shift mean for the way that we are assessing the risks that SMEs are faced with? A standard business policy merely covers basic business risks—assets against fire, storm and theft as well as business interruption – either as a result of the abovementioned perils, or due to service interruption. Standard policies also cover cyber risks and fidelity guarantee is usually standard, with the option of credit risk extensions. SMEs tend to be especially vulnerable to credit risk, so we would always recommend taking out cover in this area.
The biggest risk, however, is for SMEs either to take out too little insurance, or none at all.
By having a tailored insurance policy, a SME can reduce the risk of uncertainty in their current operating environment. Here are three examples where specific details and inclusions on a client’s policy will provide them with adequate insurance cover.
- The theft section normally provides cover only when force and / or violence caused the loss. Clients forget about this and then suffer losses due to theft where goods were left in the open. Cover can be obtained for this in some instances but must be declared before inception.
- The average condition is applicable on the glass section so clients must ensure that they provide the full replacement of all glass and not only certain panels to ensure average is not applied.
- Clients must ensure to specify accessories to vehicles over and above the retail value or they will not be compensated for loss of the accessories.
It is key for us to support the broker in terms of analysing the risks, accurate pricing, providing the best fit for the client in terms of product. We also provide a risk assessment survey of the client’s premises to assist the broker in highlighting any concerns, as well as offering recommendations in terms of mitigating the risk for the client. We can offer better risk management for SMEs, but we need to work with brokers and their clients ensure that they are not under insuring.