By Karen Rimmer: Head of Distribution at PSG Insure
The events of the past three years have given rise to an upswing in the insurance market, which has resulted in hardened market. What this means for businesses on the ground is that insurance premiums may be higher than in previous years. Additionally, underwriting criteria may be more stringent, the capacity of insurers may be reduced and competition amongst insurance carriers will be relatively low.
These developments were triggered by a series of unexpected changes to both the global and local risk landscapes caused primarily by the pandemic. In South Africa, this was compounded by the 2021 July riots and the severe flooding in KwaZulu-Natal during 2022. Many of the shock waves caused by these events were absorbed by local small businesses. Given the scope and prevalence of new and emerging risks, small businesses need to prioritise the implementation of measures to protect their profitability in uncertain times.
The fluctuations between expansion and contraction of the economy are not unique to the insurance industry. But the susceptibility of insurance to market volatility has been brought to light by recent events. The early years of the 2000s were indicative of a noticeable softening of the market which saw lower insurance premiums, broader coverage and relaxed underwriting criteria. But now, well into the second decade of the millennium, the market has hardened substantially.
In a hard market like the current one, advisers and small business owners need to work closely together to find ways to manage and mitigate risks that can approach from several different fronts.
Affordability – a long-term consideration
One of the biggest misconceptions that exist in the commercial space is that only large corporates or established businesses need insurance cover. But, for small businesses, the potential loss that follows risks like cybercrime, looting, fire or employee-related damages can be irrecoverable.
Insurance for business interruption was a lifesaver for many small businesses who took a prudent approach to managing unforeseen risks like the pandemic. In the case of the July riots, small businesses who had taken out the SASRIA policy extension prior to the event, benefited from the safety net that this very specific cover provided.
So, while a premium may affect the cashflow of a business in the short term, paying monthly premiums is far more affordable and manageable than covering the replacement value of premises, a company vehicle or the cost of litigation.
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What small business owners also need to be aware of is that every insurance policy is different. Advisers play a role, not only as product specialists but as analysts that can assess their client’s risk appetite and structure policies accordingly.
In some cases, to keep the price of the premium as low as possible, small businesses choose to self-insure certain items. Others may choose to take on larger excesses to cut the monthly cost of the premium. The important factor to consider here is that advisers, equipped with the right knowledge and information on what a company’s needs are, can help tailor insurance to meet the unique profile of the client.
Understanding the fine print – roles and responsibilities
One of the aspects of a hard market in insurance involves stricter underwriting, which results in policy wording being reviewed and made more explicit in terms of what the client’s responsibilities are. Here, advisers can assist in helping clients navigate industry terminology and gain a clear understanding of what they are expected to take due care to do and prevent loss.
It is vital for business owners to discuss all possible risks with an insurance adviser. These risks will vary according to factors such as the geographical location of premises, the crime rate, any existing security infrastructure and how equipment on-site is being used. Likewise, the measures that will need to be taken as proactive safeguards against disaster will vary from business to business.
The hard market and the road ahead
In South Africa, the ongoing energy crisis has placed insurers under immense pressure and required underwriters to employ technical measures to manage the related risks. Going forward, loadshedding and the threat of grid failure will become one of the most immediate risks that small businesses need to mitigate. As industry experts, who are called upon to keep a finger on the pulse of social and economic developments, advisers are in the best position to help small businesses navigate the crisis.
The fact that PSG Insure has seen an influx in requests for quotations from small businesses in a number of sectors is testament to the fact that business leaders are realising the importance of managing risk as a matter of priority. There is, however, much ground yet to cover in driving awareness around the role of insurance cover and the guidance of an adviser as keys to futureproofing a business.