The SME sector has been hard hit by the COVID-19 pandemic, and with it, the risks that small businesses face has either amplified or changed fundamentally. When you’re in the thick of running your business and tending to day-to-day work responsibilities, it’s easy to leave aspects such as risk and insurance simply to ‘tick’ over, but that could leave you compromised as your business evolves and the exposures in your environment and industry change.
Aon South Africa, risk advisors and insurance brokers, share some insights into some of the key risks that SMEs face, and the important risk trends and insurance solutions that every SME should have on their radar...
1. Has the nature of your business done a 360-pivot as a result of the pandemic?
Many businesses were forced to change their business models, product offerings and premises as a result of the economic fallout of the pandemic. These changes hold significant implications in terms of the nature of the risk that your insurer initially agreed to cover, to what the nature of risk may be now. Have you changed business premises, or are you working from home? Where are you storing stock and what security measures are in place? Has your restaurant been changed to a catering operation? Have you changed your manufacturing processes or the nature of products being produced? Are you sub-letting your premises? Are you doing professional consulting work and charging clients for your advice or expertise?
Your insurance cover could be compromised or entirely negated if the profile of the risk initially accepted by an insurer at inception of the policy is materially altered, without notice and updating the risk mitigation measures that may be required by the insurer. It is crucial to engage with your risk advisor and insurance broker if any aspect of the nature of your business and risk profile has changed in recent months. This is an invaluable exercise not only to ensure that you are adequately insured for known risks but also to explore any unforeseen risks that you may not have considered.
2. Vehicle Insurance
Whether you run a handful of motor vehicles or a fleet network, make sure your vehicle insurance is fit for purpose with sufficient liability cover. From an asset replacement perspective, your business vehicles should be insured at no less than retail value, which is what a car dealer would sell it for taking into consideration age, mileage and condition. Don’t forget to add extras or accessories such as tracking systems, tow bars, roof racks and so on. The inclusion of car hire can also be beneficial if your business is heavily reliant on the vehicle to get work done – providing for a hired vehicle while your vehicle is either being repaired or replaced following an accident or theft.
3. Goods in transit insurance
Goods in transit insurance is a vital but often overlooked aspect of SME risk management. If you’re a tradesman or contractor transporting equipment, materials or stock, the protection of your goods and customer orders while in transit against damage or loss due to an accident, theft or hijacking is critical to the sustainability of your business, your reputation and financial stability. If these goods are damaged or entirely written off during transit due to a vehicle accident, theft or hijacking, you could be left in a difficult predicament of having to replace the damaged goods at your cost if not insured, not to mention the enormous reputational damage which could ensue if customers are left compromised. A ‘goods in transit’ policy is an essential cover for any SME involved in the supply and transport of stock and finished items.
4. Cyber Risk
Cybercrime has been massively amplified in our heavily digitised lives. If your business has a network, an internet connection and holds sensitive or personally identifiable data, then your business is at 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 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). The statistics clearly show that any perceptions that cyber risk only affects large businesses or corporations are unfounded. Talk to your professional broker about cyber protection for your SME and the serious financial and legal liability if things go wrong.
5. Business Interruption
In the unforeseen circumstances that your business premises burned down, your assets cover will take care of replacing the lost items, but what happens if you are unable to trade for weeks, even months and as a result your revenue halts altogether or is diminished? Business interruption insurance is vitally important to tide your business over in terms of lost income as a result of a material damage claim until your business is back to operating as usual.
6. Director and Officers Liability Insurance
As the owner of a privately-owned business, you may not think that you need the insurance protection that large, listed companies have for their directors and officers. However, companies of all sizes, even non-profit organisations and membership associations need comprehensive cover for liabilities that could arise from wrongdoings by directors and officers in conducting their managerial responsibilities. Where a claim is lodged, the cost of legal defence and investigating an allegation, even if proved unfounded, can run into millions of Rands, draining company and personal financial resources, as well as the human resources that should be focused on running the business. An area that can also give rise to D&O liability is the fact that start-up businesses usually don’t have the necessary funds to employ specialised skills for issues around complex legal matters, making them more susceptible to legal compliance claims brought by governmental agencies or regulatory bodies on issues such as tax, labour, data privacy and even environmental laws.
7. Professional Indemnity
No professional relishes the thought of making a mistake or being accused of being negligent in the execution of their professional duties. You may not even have made a mistake for a claim of negligence to be brought against you, however, you’ll still need to defend any such claims to resolution, which can be a costly affair, both in time and financially. It is when things go awry, and a claim is lodged that the real value of professional indemnity (PI) insurance and professional advice are truly appreciated. Professional Indemnity (PI) insurance provides the insured party with indemnity in respect of legal liability arising out of the practice of their profession. Indemnity cover will include the professional’s own legal costs, as well as any compensation to the claimant and/or legal costs that are up to the limit of indemnity of the policy, providing all parties with peace of mind and financial protection in the event of a claim. PI insurance is designed not only for traditional professionals who provide advice or a service to their customers but anyone who holds themselves out to be an expert in a particular field and whose expertise and advice the public might rely on, for example, an IT expert.
8. Commercial Crime
In the current tough economic environment, fraudsters are becoming more creative and syndicates are also at play, which means business owners are facing ever-increasing risk from commercial crimes in areas such as credit payments, EFT transfers, debtors, petty cash abuse, cash theft, international transfers, payroll fraud (ghost employees) and stock theft. The fundamental solution is a commercial crime framework, incorporating indemnity for losses resulting from employee dishonesty, forgery or alternation, fraudulent transfer instructions and third-party computer crime.
9. Trade Credit
Accounts receivable is often the largest uninsured asset on your company’s balance sheet and can account for up to 40% or more of your company’s total assets. Any business that has a debtor’s book
offering credit terms, regardless of whether the debtor is local or across borders, needs comprehensive protection from the implications of a financial loss sustained by non-payment, insolvency and business rescue of its debtors. Trade credit insurance offers protection of accounts receivables against non-payment due to slow pay, insolvency or foreign non-transfer risk. Coverage is designed to prevent disruptive losses, reduce the risk of key account concentration levels, and provide risk transfer of bad debt issues. With trade credit in place, companies can also enhance their bank financing in terms of improving the lending relationship, enhance their balance sheet and gain access to more capital at reduced rates.
Regardless of size or status, there is no one size fits all approach to business risk insurance, especially in a radically changing business environment. It all depends on the size of the company, the nature of its business and its unique levels of exposure. Consulting with a professional Aon risk advisor is an invaluable exercise in protecting your business, reputation, clients and bottom line.