Jessica Dos Santos Morelli, corporate account manager at CIB
Small, medium and micro enterprises (SMMEs) play a significant role in South Africa’s economy. They contribute a considerable amount towards economic growth through job creation, innovation, and development.
Although these businesses might seem small, they form a vital part of an emerging economy and make a significant contribution towards national GDP. In fact, SMMEs are responsible for employing close to 70% of the global workforce.
SMME owners are usually entrepreneurs with fearless drive, determination and unlimited bravery and courage who create a need in a market and turn that need into a profitable business. But however brave or resilient a business owner may be, there are many challenges to overcome. SMMEs face many risks which, if they should occur, could have a devasting and long-lasting effect on the profitability and sustainability of the business.
For a small business, and especially for a start-up, cash flow is often the biggest challenge. A lack of access to adequate finance is a major contributing factor to business owners failing to kick-start their operations. Cash flow problems could also lead to existing businesses ceasing operations.
SMMEs may also find it challenging to obtain physical infrastructure at affordable costs. Often these businesses are unable to purchase commercial property without financial assistance from banking institutions. And, although it may seem that the banking industry understands the business requirements of SMMEs well, there are practical difficulties and challenges present for start-up business operations when it comes to obtaining finance.
There are many reasons why business insurance should be considered. Often it is required for certain contracts. For example, where a commercial property finance loan is granted to a start-up operation, the bank will require confirmation of insurance cover on the building before finance is granted.
No business owner can predict what might happen in years to come – or even weeks to come. Risks are unexpected, as we have seen with the COVID-19 pandemic and catastrophe losses as a result of climate change. For this reason alone it is highly advisable to take out insurance cover for unforeseen and sudden loss occurrences.
SMMEs who purchase the right insurance cover can safeguard their businesses against loss following the interruption of, or interference with their business in consequence of accidental physical loss of or accidental physical damage to tangible property. This is especially important for a start-up operation that might not be able to re-build from the bottom up following a large loss. Most small to medium businesses would struggle to restore their operations in the event of a large business interruption loss.
The insurance industry today is much more familiar with and geared towards understanding the risks associated with SMMEs. The industry has gone as far as designing innovative insurance solutions and products to cater for SMMEs’ unique insurance requirements. Insurance products are readily available in the market that offer tailored solutions and bespoke product benefits specially designed to offer affordable but comprehensive insurance solutions to meet the unique requirements of small to medium businesses.
SMMEs, together with a qualified intermediary, can identify risk factors and business risks and then build an insurance policy best suited to their business needs without the financial burdens of compulsory and costly insurance covers that might not be relevant to the business itself.
Some of the benefits of these bespoke products include the issuing of policies on a first loss basis, which means that there is no indemnity period applicable under the business interruption section of the policy. Also, excesses across all sections of the policy can be waived, and the average condition deleted.
Businesses run on risk; there is no certainty whatsoever. But business owners deserve peace of mind. Not all risks are in the direct control of the business owner, but businesses can and should be geared toward comprehensively managing their risks.