You might still view insurance as a grudge purchase but the day that your factory burns down or a customer takes your business to the National Consumer Commission, you’ll be glad about having invested in the right kind of cover. While there is a great deal you can do to proactively reduce and avoid certain business risks, the simple reality is that there are those business risks that can only be mitigated by having the right insurance.
Quinten Matthews, Santam’s executive head, Specialist Business, points out that businesses don’t need to necessarily insure against all risks. “The SME owner needs to decide what risks he can manage himself and therefore retain within the business, and what risks he can’t retain and needs to transfer to an insurer,” he says. Doing so is the key to obtaining lower premiums, he adds.
First, however, you need to conduct a thorough risk and needs analysis. “It’s helpful to obtain appropriate advice on what to insure and what to retain, as this changes from one small business to the next,” says Matthews. Retaining risk is also linked to the measures you put in place to properly manage such risks. A retailer, for example, may decide they can retain the risk of theft of a certain sum of money because they have a drop safe and have arranged for regular cash collections, and they’ve put incentives in place to encourage customers to pay via credit card. However, they may decide to transfer the risk of stock theft to their insurer.
An insurance broker can help you identify the risks, as can your banker and your audit firm. As Colin Hill, solution manager – Risk and Financial Crimes, at SAS Institute, points out, “Your business banker is working with many other SMEs and has a good grasp of the issues that lead to business failure. The same can be said for audit firms. Both of them can provide valuable assistance in identifying your risks.”
Risk assessment should be revisited at least twice a year, advises Matthews. “Risks change and this means that insurance needs to change accordingly,” he adds.
Because risk profiles and appetites differ from one business to the next, a one-size-fits-all insurance solution is not ideal. Specialist insurance is very different to off-the-shelf insurance and addresses the needs of companies in industries such as aviation, marine, logistics, construction, engineering and industrial or manufacturing sectors. If you’re looking for the best cover and a cost-effective solution, opt for a tailored insurance package.
CPA and the increased need for liability insurance
Large and small companies need to consider increasing liability insurance in the context of the new Consumer Protection Act (CPA). “The CPA places stricter liability on the supplier of goods and services, so companies can no longer fob this responsibility off on manufacturers, for example,” says Matthews. And because the CPA has driven greater awareness among consumers of their rights, there is an increased chance of litigation. Matthews points out that businesses need to look at the potential damages that could be made against them, as well as the cost of litigation. Both of these should be considered when taking out liability insurance.
Top mistakes to avoid
Quinten Matthews offers the following advice when taking out insurance, based on the most common mistakes businesses make:
- Fully understand your business risks — you can only insure what you know to be a risk area.
- Beware of under-insurance (taking out a policy that is not sufficient in value to cover the cost of your losses). It means you will have to partially refund the replacement costs.
- Partner with a reputable insurer that has a track record of paying claims.
- Get comparitive quotes from different insurers.
- Don’t chase a lower premium at all costs as this can lead to less-than-comprehensive cover.
- Build an open relationship with your broker that is based on full disclosure of your risks.