Insure or perish!

All companies – from small start-up enterprises, to major corporate organisations – cannot afford to NOT have insurance, as PETA LEE explains

Most people have insurance on their cars and homes, but business insurance is just as important, if not more so.

From small and medium enterprises to giant conglomerates, having proper insurance should be a priority. Business insurance, such as cover against loss of profit, closure and so on, is vital; because it can help a company pay off debts, give employees severance packages and tie up any loose ends. Risks come in all shapes and forms, and, for this reason, finding the appropriate policy is critical from the outset.

For small start-ups, says South Africa’s insurance giant Santam, the journey through the first three years, or 1 001 days, is a mix of good and bad times. “The bad days include minor disasters like delivery vans crashing, or stock getting stolen – which is why you can’t afford not to have a good policy in place.”

Insurance is, however, often seen as a necessary evil, points out Nicky Gray of CookeFullerGarrun, insurance brokers and financial advisers, based in Howick in the KwaZulu-Natal Midlands. “More and more often it is deemed unnecessary by business owners,” she says.

Insurance covers a multitude of assets and events, but, generally, the first thing people think about when it comes to insurance is cover against theft.

“While this threat of theft is real, there are many other aspects to consider,” says Gray. “For example, you buy a heavy machine and set up your business in a mini factory. You know you have no risk of theft, and, therefore, believe you do not need insurance at all. It is, however, important to consider the other risks. Who’s your immediate neighbour? What if it’s a fabric merchant who shares a wall with your business? This would mean there’s a significantly higher risk of fire, and, trust me, fires do happen! You could lose everything through no fault of your own.”

Companies that haven’t insured against this possibility may never recover financially. Even if the fire doesn’t spread to your business, your workshop could become inaccessible, due to a fire at your neighbour’s business.

While small business risks frequently include fires and special perils (claims resulting from wind, water or hail damage) collisions and vehicle accidents outweigh most big insurers’ commercial claims quite substantially.

Gray says that truck owners transporting hazardous goods on our national roads also run the risk of their vehicles being involved in an accident that would result in these materials being spilled. Clean-up costs could run to tens of thousands of rand. If the business is not insured adequately, these costs could mean closure for the company.

“It’s critical to insure for the right amount, too,” she points out. “Some trucks and larger commercial vehicles are not noted in the TransUnion Auto Dealers’ Guide, which is typically used to determine vehicle value. In addition, accessories and modifications for larger business vehicles can be worth more than the vehicle itself.”

Another point to consider is that mechanical breakdown is not covered by vehicle insurance, so it’s advisable to get specialised cover to ensure that, if a delivery vehicle breaks down, the repair costs do not damage the business as well.

Gray adds: “In an growing litigious environment, a business owner needs to protect his business against numerous unforeseen threats.”

“Another example would be if the company’s computers are stolen and someone accesses clients’ information, clients could sue your company. If the company is not properly insured, you might lose all that you have worked so hard to build. Cyber crime is another global problem, and is a growing threat in South Africa.”

Other risks include:

• If a business starts with a bang, it may get “flagged” for an audit by the South African Revenue Service (SARS). The cost of preparation for this could run to tens of thousands of rand. It is possible to insure against the cost of employing accountants to prepare the necessary paperwork.

• Building business premises? Ensure your contractor has a contractors’ all-risk policy. Traditional building owner’s insurance does not cover faulty design, so the architect and builder should have professional indemnity insurance in place.

• Group personal accident insurance can be added to traditional commercial insurance policies. This is a relatively inexpensive way to ensure the protection of employees in the event of a work accident. This can be extended to cover them on a 24-hour basis.

• If the product a company has manufactured is recalled, the costs can be huge. It is possible to take out insurance to cover the costs involved in the recall. In this instance, and the bigger the company, the bigger the potential cost. A large company with a multi-national footprint would suffer a greater loss than a small one. Access to crisis-management expertise is invaluable, as a poorly handled product recall can cause irreparable damage to the reputation of any business. With insurance expertise and financial support, the risk can be mitigated.