Time to change our approach to SMME insurance

Michael Clack, general manager business development at Renasa spoke to COVER about the importance of insuring small and medium enterprises.

COVER: From your perspective, what do you see as the biggest risks these SMEs face?

Michael: About a third of SA’s GDP comes from small to medium enterprises and another staggering fact is that about 70% of these businesses fail within three to five years, obviously because of the risks that surround them. Two of the most significant challenges in my view are finance and tough economic conditions that the SMEs will face, and then crime. Add lockdown to that and you find that this segment has been hit hard, because it is such a volatile segment of the economy.

They mostly have limited funding, limited staff complement and lack continuity in their business, because it’s a business that they started up and got going. There’s a lot of risks that do not always come to the fore in this business segment, for example, take cyber risks and operational IT risks that they will most probably face at some stage. These are just some of the risks that they would face, There are many more risks they will face, but those are probably the highlights.

COVER: If you then look at us as an insurance industry, wanting to underwrite and protect these businesses from those risks, how do you rate our ability, at the moment, to address these risks?

Michael: I think the industry is coming around. There is a lot of focus on this type of business and the risks associated with them. The big need in the industry is for a bespoke type of product for these SMME businesses. The general focus needs to be placed on establishing an environment for the small business owners to comprehensively manage their insurance risks that their business might encounter. Now with these non-traditional businesses it changes all the time, they need a product that can grow with this type of business. You know, they also don’t generate large premiums, there’s not large exposures to begin with, to create a product that is designed all geared up for the startup type SMME. I think that’s what we see now.

I know COVID is a thing that we all talk about but it’s affected these businesses and unemployment is going up because of that, a lot of people are looking for other avenues to create a business, to create an income. So it’s got to be a flexible product, kind of like the banking that is also coming around with their fees. They create special accounts for an SMME type business and I think our industry is doing that, but I think we need to gear it up a bit more because this is a traditional business, and then we need to kind of look outside of the box a little bit to gear ourselves up more to do this maybe quicker.

COVER: Obviously we’ve got a considerable range of products already that we are targeting them with, similar to what Renasa already has in the market. But how do you make sure that they actually have appropriate insurance because, as you said, these businesses are small and they don’t necessarily have capacity, they wouldn’t have somebody dedicated to managing risk?

Michael: Good question. I think the big thing is education. Looking from Renasa’s perspective, seeing as we only deal through brokers and we don’t have a direct arm, we need to educate our brokers that we have a suitable product. Product design is most important to be specific to what the needs are for this type of business. Because an SMME type of business, as I said before, is very different to the old traditional commercial or business type of insurance. You’ve got to create, firstly, the culture to insure amongst these small SMMEs, especially because they operate in very low margins and insurance might not be a consideration when you’re starting up. But not being insured, no matter how big or small your business is, that will definitely ruin your business, if you have any kind of an adverse event.

So where a small business might lose a laptop, and they don’t have R15,000 to replace it, the loss would be as big as the losses for a manufacturer that loses his whole factory. I think education is a big thing and the product design, as I said, is important. You’ll probably find the type of product that is needed is more geared to ensure mostly electronic equipment, etc.

For that reason, Renasa developed a bespoke SMME commercial product for this exact segment, we call it LiquidSure. The idea behind LiquidSure for the brokers and the insured is to create a product that is compellingly convenient. It allows the small business owner to manage the financial challenges they might face by not forcing cover upon them which is not relevant to the field of business that they’re in and that they can afford. It’s a product that is aimed at the startup and small to medium enterprise. For example, the product band is determined by the business’s annual turnover. A few of the unique benefits which will help the businesses to grow and not have a big financial contribution from an insurance perspective, is that the policies are on a first loss basis, with no excesses applicable to any section. The average condition has been deleted, so there’s no average for all sections of the policy, which makes it compellingly convenient for the brokers as the need for advice is limited. There’s no indemnity period on the BI because it’s on a first loss basis and SASRIA cover can be added. So all of those things are geared to not financially burden the company. Furthermore, it is geared to focus on the circumstances of the particular business, taking away the irrelevant covers that’s not really applicable to their form of business.

It is all driven by the business interruption or the turnover, but they can obviously select additional cover for something else, with an appropriate premium. It is one of those very flexible products that is designed to, for example, when the need was there in the beginning of lockdown, to detune your cover. Now going forward for new startups, they have a flexible insurance product that can grow with the business from the early stages right through until they’re this big multinational. LiquidSure is a product that is designed for exactly that.

COVER: You mentioned education earlier, especially around the client, but how do you include the broker in that education process, and what role do they play?

Michael: They definitely need to play a role, especially in our environment, as Renasa. If you look at what’s happened in the last year or so, the focus has been strongly on consolidation, on keeping the business that we’ve got on the books. The same for brokers. And now I think business and the world is opening up again, so we need to put the focus on increasing business and ensuring ongoing advice. We would need to get out there to create that environment where we bring this to front of mind for the brokers. For example, the traditional policies that were out there pre lockdown might not be appropriate now, especially due to many businesses having changed.

So where you had these office blocks full of people, they’re not full of people any more. That would definitely have a change on the way the policy is structured in terms of the covers that is required. It might mean restructuring of the policy or maybe detuning the cover to a large extent, because some of the coverage is not required. This is where clients’ needs analysis comes very much to the forefront. This is the principle that we need to get out there, ensuring the client understands that a renewal needs to be done, and more thorough than in the past.

COVER: Lastly, anecdotally maybe, based on the COVID experience from last year, have you seen any change in the uptake from small businesses on insurance or trying to manage risk differently?

Michael: Certainly. Small business owners are looking at risk differently from the past. They now realise that the world can throw unexpected risks at them and they need to look differently at their insurance needs. We are seeing requests for differently structured and more flexible products, which we now offer, as explained above. Brokers are picking up on that and we are seeing very positive trends in the insurance of the SMME market.

Download the article as it appears in the April edition of COVER

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