By: Christelle Colman, Insurance Expert at Old Mutual Insure
While small business owners cannot insure against load shedding, they can act to understand and manage their risks, significantly reducing the impact of load shedding on their businesses.
Understanding what can go wrong in a small business when load shedding hits and working out what small business owners can to do manage these risks, preventing damage or loss upfront, It will also reduce the cost of insurance by limiting cover to only those risks which small businesses can’t predict, mitigate or manage.
Though estimates vary, it is generally thought that South Africa is home to 5.6 million small businesses – of which 3.3 million are survivalist businesses, 1.7 million micro-enterprises and 554 000 small enterprises. These businesses account for 28% of employment in South Africa.
Small businesses more vulnerable than large
Most small businesses rely on a constant daily income to cover running costs and salaries. When power goes down small businesses generally can’t produce anything or do any work. Unlike larger businesses, they are also not in a position to postpone production or do double shifts the next day. Moreover, most small businesses do not have sufficient income or cash flow to afford a generator or solar and photovoltaic systems – let alone cover the fuel and maintenance costs of self-generation on a continual basis.
When load shedding happens most of South Africa’s small businesses, “simply make no money, pay no bills or salaries and produce no income for the families they are supporting.
Apart from the very real risk that load shedding presents to the commercial survival of small businesses, load shedding also presents a number of existential risks.
Spoilage, for example, is a big load shedding-associated risk, especially for restaurants, spaza shops, roadside food vendors or fruit and veg suppliers. Theoretically, while those with fridges can try to open and close them less often, in a vending situation this can be difficult to achieve in practice. Also, for smaller businesses that rely on getting cooled or heated goods to clients quickly – but don’t have the facilities to cool or heat the goods themselves – picking up unrefrigerated or unheated goods from a supplier suffering load shedding means, at best, no business that day, or, at worst, thousands of Rands of spoiled goods.
Another risk associated with load shedding is damage to alarm systems, either from run down batteries or surges when electricity is restored. There is also the risk of, theft when alarms crash at night or over weekends. While it’s a good idea for small businesses to ensure that their alarm systems have back up power, batteries don’t last indefinitely and run down or degrade with repeated power outages.
The buck stops with you
It will be near impossible to recover any losses suffered as a result of load shedding from Eskom or local municipalities. There are also no specific policies that small businesses can purchase to cover load shedding as an insurable event.
Some commercial policies provide cover for loss resulting from physical damage to the public power supply. When lighting or an explosion, for example, destroys a substation the business can be indemnified for the reduction in gross profits as a result of the interruption. Cover can also be purchased for damage as a result of power surge, which can occur when the power is switched off or comes back on.
Load shedding is, however, a management tool – not a physical break down – introduced by Eskom to prevent the collapse of the entire electrical infrastructure. Eskom also warns users of imminent load shedding.
In the end, there is little formal redress for small business owners when it comes to load shedding. The buck stops with you, so take charge and mitigate your own risk. There is, I fact, a lot that you can do.
The best risk mitigation that small businesses can institute in the face of load shedding is primarily preventative.
Small businesses can, for example, install surge protectors for computer and other electronic equipment. Installing uninterrupted power supply (UPS) systems will also, allow electrical and electronic equipment to continue to function when the power goes down – a least long enough to switch everything off correctly so as to avoid damage.
Small businesses should also continually check alarms and their batteries to make sure these are working.
Know how long your alarm battery back-ups work. Most only run for a few hours. They also take a while to re-charge. If load shedding goes on for several hours, or happens a number of times over a weekend, business owners should either have a second backup system, check on their premises physically over the weekend, or have security guards on standby during load shedding.
In cases where Eskom or the municipality announces scheduled load shedding, business owners should use this information to mitigate risk, “switching off sensitive equipment 20 minutes ahead of the announced load shedding – and only switching everything back on after electricity is restored and stable.
Taking the correct safety precautions during load shedding is another important risk mitigating factor that small business owners can institute. During load shedding staff should continue to treat all electrical points as live. Generators, batteries or UPS equipment should be installed by a qualified electrician, with all staff trained on how to operate the equipment correctly.
Cover the essentials
Thereafter, small businesses should understand exactly what risks they can’t mitigate or manage themselves, “purchasing limited cover for the risks they genuinely face and can’t manage.
Public liability cover, for instance, is strongly recommended in an age of load shedding. Should a client, for example, get injured when an electrical circuit comes on after a power failure, and the small business is found legally liable, “public liability can mitigate the claim, including legal defence costs.
Small businesses should also purchase cover for catastrophic events that can destroy the business outright – like fire and, depending on the nature of the business, explosion. For businesses that rely on vehicles, third party insurance – at least – is a must. If, for example, you have a refrigerated truck delivering meat to township butcheries and spaza shops, your driver being held liable for damaging a multi-million Rand sports car could wipe out the business.
Small businesses should not purchase cover for smaller things that can go wrong, or items that need constant replacement – like mobile phones and other high-attrition equipment. Instead, small business owners should be creative, coming up with packages where staff use – and maintain, for example – their own mobile phones for work, receiving a limited monthly allowance to do so.
You are your own best risk manager
In short, South Africa’s small business owners should examine closely what can go wrong in their business, and then, “rate how seriously these things could go wrong in terms of their existential threat to the business – while also assessing the likelihood or frequency with which these can go wrong.
Understanding and rating risk in this manner is the essence of risk management – whether you are the risk committee of a large corporate or running a web design business from home.
Thereafter, small businesses should take the correct measures to prevent or manage all the risks that they can handle themselves. Finally, small business owners should consider purchasing cover for only those risks that they can’t manage – and that genuinely present an existential threat to the business.