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Sat, Aug 13, 2022

Sustaining Your Business Through Insurance

Spates of unrest in South Africa, during 2021, has placed the spotlight on Business Insurance and Assurance. The country experienced damages of insurmountable proportion as malls and many businesses located throughout the country were looted, destroyed and some even torched to the ground. The damage is estimated at approximately R3 billion and counting.

The Small and Medium-Sized Enterprises (SME) environment in South Africa finds itself in a worse position considering that businesses have not operated in the most favourable climate, in a country that is rated as one that has too much red tape for any new business entrant or start-up.

The announcement, that South Africa was entering a lockdown period in March 2020 to curb COVID-19 infections, brought about much distress to the livelihoods of many and the normal operations of most businesses. This has affected the country, which is now in dire straits, economically – as more businesses are shutting down and the unemployment rate increases.

If it is said that the lifeline of most economies is a thriving SME industry, then we are not doing nearly enough to ensure that this industry is adequately supported and equipped to revitalise the South African economy one day.  This industry is plagued by policy directives that hinder instead of building it; prohibiting a conducive environment to operate in.  Access to information, funding and markets are but a few of the challenges that are faced by these true drivers of the economy.

It is largely known that there are mainly three reasons that people become entrepreneurs: 1) to make money to meet their basic needs. 2) to impact society and contribute to its welfare by providing solutions to eradicate hunger, unemployment, poor education and several others. 3) to gain freedom and control as power is nothing without control and entrepreneurship gives room for freedom and power.  For these reasons, a business needs to protect itself and ensure it remains sustainable to live through its lifecycle that will allow it to experience the points raised.

Business owners and entrepreneurs must plan for the sustainability of the business by addressing business continuity plans, which are driven by the level of insurance and assurance of the business, the business owner, partners and the employees, even going to an extent of the clients and customers and its products and services. In every business planning process, it is critical to mitigate company-specific risks and risks that are influenced by (PESTEL) Political, Economic, Social, Technological, Environmental, and Legal factors. Adequate insurance is required and start-ups need to ensure that they engage professionals to develop a business plan that factors in their insurance and assurance requirements.

It has been cited that most businesses do not purchase insurance coverage as a means of saving on expenses. But one needs to ask whether a few hundred rands is worth saving versus the total expenditure required to repair the damages caused by the recent rampage, riots and looting that took place in the country.

“There are several types of insurance that business owners need to consider. The appropriate choices will depend on the kind of business, its size, and its potential risks.” says the Founder, Director and Representative of Health and Rands Business and Financial Consulting, Mr Khumo Mahuma.

Recent incidents have prompted Mahuma to go to market and engage the leaders in the Financial and Insurance industry and SMEs to provide solutions to address a myriad of risks that might force them out of business, leave them in huge debt or even land them in jail.

As a business owner, you need to understand the different types of insurance available to SMEs:

BUSINESS INSURANCE

This is insurance aimed at insuring the business operations, business assets, product & services offerings and human capital operating within the business to ensure continuity and avoid liability.

The following are some of the covers that are important to consider:

  • Business Insurance: Insurance of movable and fixed assets
  • Business Overhead Expense: Insurance cover taken by a business owner to cover business overheads should they not be in a position
  • Business Owner’s Insurance: business owner insurance policy offers SMEs broad protection against financial loss. If their property is damaged by fire or flooding, for example, then the insurance company may pay the cost of repairs. Among the risks that may be covered in a business owner’s policy are: Fire, Flooding (pipe bursts), Other sources of property damage, Theft, Bodily Injury, and Business interruption for specified reasons
  • Commercial Insurance: plans are designed to protect small businesses from injury claims, cyberattacks and other liabilities.
  • Professional Malpractice Insurance: Professionals in fields like Medicine, Dentistry, Law, Accounting, Advertising, Financial Planning, Occupational therapy, Computer analysis, Journalism, Psychotherapy, and Real estate that give advice and/or provide services require professional malpractice/professional indemnity insurance to protect themselves from substantial liability in the event of a lawsuit for material liability they might have caused their clients
  • Product Liability Insurance: This type of insurance, obtained at additional cost, may be a necessity if you sell a product that has the potential to injure a user. If you sell a product that injures someone—even if you did not design, manufacture, or distribute the product—then you may have legal liability that should be covered.

BUSINESS OWNER INSURANCE

This is insurance aimed at ensuring continuity of the business in an instance where the business owner(s) is/are unable to continue working in or on the business. Events that prompt this include death, temporary or permanent disability or critical illness. When such an event happens, the business must continue to run.

  • Key man Insurance: insurance the business takes on the life of the key person (the critical skilled person) to replace him with another equally or more skilled person in the event when they cannot continue to participate in performing their role, and the business continues to run.
  • Buy and Sell insurance: The kind of insurance business partners take on each other so that if one of them is unable to continue with their participation in the business, insurance pays them or their beneficiaries, and the remaining partner(s) take(s) over their part of the business and the business continues to run.
  • Contingent Liability Insurance: If a business takes a loan, the business partner(s) will need to take an insurance cover equivalent to that loan. If any of the partners cannot continue with their participation due to death, disability or severe illness, insurance settles their loan, and the business continues to run.

HUMAN CAPITAL INSURANCE (EMPLOYEE BENEFITS)

These are umbrella/group benefits structured and offered by various insurance providers an employer takes on behalf of their employees to address various risks. They may include, among others:

  • Group death benefits
  • Group disability benefits (temporary and permanent disability)
  • Group sever illness benefits
  • Group funeral benefits
  • Group Child Education Benefit
  • Group spouse cover

PERSONAL INSURANCE

Whether you are a business owner, an employer or an employee, you need the services of an accredited insurance broker to assist you in building a comprehensive personal portfolio plan.

Your personal portfolio should address the risks you are potentially facing when you are alive, actively earning a salary before you retire, after you retire, or when you are ill, disabled, critically ill or dead. Your life or the lives of your family should not change for the worst during and after any of the life stages mentioned above.

“If you run a business, you need to discuss your insurance needs with an accredited insurance broker and to adequately address and cover all potential risks you and your business might be facing. It is the duty and responsibility of your broker to ensure that you know what you are covered for and that regular reviews of your cover are done to adapt to your changing circumstances” Mr Mahuma advises.

“It might seem complicated and overwhelming, but with the assistance of an accredited broker, we will assist you with your business and personal financial need analyses and simplify the insurance loopholes and offers to you” Mahuma concludes.

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