By: Andrew Aubin, Aon South Africa’s regional GM: coastal region.

A tough economy, weather catastrophes, geopolitical pressures and crime are converging to create a volatile and uncertain environment for businesses of all sizes, more so for small businesses that often don’t have the benefit of big balance sheets to carry them through the growing financial pressures. 

Crime and unemployment rates in South Africa are also amplifying the risks to the business landscape, making it essential for small businesses to consider their insurance expenditure carefully and to make every Rand count where it matters most. Given that the SME sector is the lifeblood of South Africa’s economy with small enterprises employing between 50 and 60 percent of South Africa’s workforce and contributing around 34 percent to the Gross Domestic Production (GDP), the importance of risk management coupled with properly scoped insurance covers, balanced against affordability has never been more important for the sustainability of the sector.    

“We know that every business must turn every Rand over to make ends meet, and it is natural to focus on expenditures that need to be cut to ease tension on the bottom line. However, we urge small businesses to carefully consider their insurance covers, as a catastrophic loss could spell the end of any business if the essentials are not covered,” says Andrew Aubin, Aon South Africa’s regional GM: coastal region. 

Property Risk

Tangible property, plant, machinery and equipment, furniture and fittings, computers, through to vehicles, warehousing and stock are the bread and butter of any business, small or big, as well as the liability risk that comes with these assets.  

“In many instances, risks such as fire, theft or flood that result in the damage of assets, can compromise key business processes, with subsequent impact on the ability of the business to continue operating. If you consider the effect of a catastrophic event such as a flood, it will not only entail damage to the building, contents and stock held at the business premises but also cause business interruption that can take weeks, even months, to be resolved while overhead costs remain,” says Andrew. 

In this instance, a business would rely on the following covers to tide them over:

• Property Damage: The cover provides peace of mind that your business property, including buildings equipment and stock is covered for theft, fire, floods and other unforeseen events. 
• Business Interruption Insurance: If unforeseen events, like a fire, halt your operations, business interruption insurance covers lost income until normal operations resume. This is crucial for maintaining revenue during recovery periods.
• Vehicle Insurance: Whether you manage a few vehicles or an entire fleet, ensure your vehicle insurance provides adequate cover for damage, theft and liability claims. Don’t forget to include extras like tracking systems and car hire options if your business relies heavily on these vehicles. The rising cost of repairing older vehicles can lead to a vehicle being written off for a minor accident at a low retail value, in which instance it would be more cost effective to take balance of third-party fire and theft cover or only third party cover on very old vehicles.
• Goods in Transit Insurance: Protecting goods in transit is vital for SMEs involved in transporting equipment, materials or stock. Insurance against damage or loss during transit due to accidents, theft or hijacking is crucial for maintaining your business's reputation and financial stability.
• Liability cover: Liability covers are relatively inexpensive but a must have cover for any business in this litigious environment that the world has become. A big liability claim can be catastrophic for an SME. It is essential to have a limit of indemnity that is adequate to cover not only the settlement amount, but the legal costs in defending a liability claim as well. 
  

Technology Risk

“A cyber breach has the potential to inflict enormous reputational damage, cause major interruption to normal business operations and income potential, and can also have legal liability ramifications if personal and financial information is compromised in the context of the Consumer Protection Act (CPA), the Electronic Communications and Transactions Act (ECT) and the Protection of Personal Information Act (POPI),” says Zamani Ngidi senior client manager for cyber solutions at Aon South Africa.

“While spending on cybersecurity increases yearly, the return on investment only really comes to the fore when a cyber event occurs that has the potential for major business disruptions. Decodifying the risk as it pertains to each individual business is a complex journey for which Aon has developed a number of solutions to meet this evolving client need, such as the Cyber Impact Analysis, Cyber Threat Simulation/Tabletop and Business Continuity Management for Cyber Risk. Many of these tools are able to assist South African companies that may not have the requisite internal resources and data to conduct such exercises with any reasonable amount of certainty,” Zamani explains. 

The threat of cyber-attacks continues to grow and, with it, the risk of cyber business interruptions. By analysing exposures, taking steps to address risk and establishing a strategy for assembling a claim quickly and accurately, businesses can better prepare themselves for the threat of cyber business interruption.

The right cover

Whether a business suffers a physical or cyber loss, the resulting business interruption can have a knock-on effect on its ability to operate. “If your insurance covers are not correctly scoped, the resulting insurance settlement can be significantly less than what is needed for the business to recover. There is no one-size-fits-all approach to insurance, especially for SMEs. Consulting with a professional Aon risk advisor is invaluable when it comes to protecting your business, reputation, clients and bottom line,” says Andrew. 

“The increasing frequency and severity of disruptions that can impact businesses also necessitates a two-pronged approach where businesses need to look at where risks can be transferred (insurance) and where risks can be managed (Business Continuity Management), to develop strategies that factor in every conceivable ‘worst case scenario’ to ensure that critical business functions can continue during and after a disruptive event,” Andrew concludes.