Debunking four of the biggest myths around short-term insurance for small businesses

Debunking four of the biggest myths around short-term insurance for small businesses

Managing and running a successful small business in South Africa is no small feat. Entrepreneurs face a variety of challenges at different phases of their business’s journey. One challenge that emerges right from the start, however, is the responsibility every business owner has to understand their unique risk exposure and find ways to be as well prepared as possible for the unexpected.

Myth 1: Insurance advisers are just product specialists
One of the biggest myths in the small to medium enterprise (SME) insurance space is that short-term insurance is simple enough to warrant taking a DIY approach. A big part of this misconception is rooted in the idea that insurance advisers are simply intermediaries, and that cutting out the middleman may save valuable

money and resources.
However, it’s crucial to understand that insurance advisers are seasoned professionals. They undergo mandatory and ongoing training and development in order to understand the intricacies of the risk landscape. As such, their role involves much more than just selling insurance products. Armed with the most in-depth knowledge of industry developments and events, they are also risk and business specialists in their own right.

This is particularly true within the context of the current hard market, which is characterised by higher insurance premiums, more stringent underwriting criteria and the relatively reduced capacity of insurers to shoulder higher levels of risk.

Stricter underwriting often results in policy wording being reviewed and made more explicit in terms of what the client’s responsibilities are. Here, advisers can assist clients in navigating industry terminology and gaining a clearer understanding of what they are expected to do to prevent losses.

Myth 2: Only large companies can benefit from short-term insurance
Another myth is that only large companies need to have short-term insurance, as they have relatively larger risk exposures due to the size of their workforce, business premises and company equipment.

However, the reality is that larger companies often have more extensive resource pools, greater access to emergency funds and the collateral they may need to secure financing in the event of an unexpected disaster. But, for small businesses, the potential loss that follows risk events like cybercrime, looting, fire or employee-related damages can be irreversible.

Insurance for business interruption has been a lifesaver for many small businesses that adopted a prudent approach to managing unforeseen risks like the Covid-19 pandemic. In the case of the July 2021 riots, small businesses that had taken out a SASRIA policy extension prior to the event, benefited from the safety net this very specific cover provided.
In cases such as these, having the right type of insurance cover often makes the difference between a business being forced to close its doors or being able to adequately recover its losses to remain operational.

Myth 3: Insurance cover is a one-size-fits-all agreement
Another misconception is that insurance policies are fixed and that insurers are inflexible in terms of monthly premium rates and the nature of the cover available to small businesses. In fact, policies can be tailored to suit the unique risk profile of an SME, as well as its level of affordability.

Here, the role of the adviser is to help business owners assess what they can afford, based on the risks that lie ahead and how they position their business in a way that mitigates any form of future business interruption.

In some cases, to keep the premium rate as low as possible, small businesses choose to self-insure certain items. Others may elect to take on larger excesses to reduce 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 match the unique profile of the client.

Myth 4: Business insurance is not affordable
The myth that short-term insurance is unaffordable for small businesses is decidedly short-sighted. While a premium may affect the cash flow of a business in the short term, paying monthly premiums is far more affordable and manageable than covering the replacement value of the business premises, a company vehicle or the cost of litigation, should a crisis hit. Taking the long-term view and thinking about insurance as a way of ensuring that a business is set up to last for the long haul is therefore essential.

Risk and the road ahead
The influx of 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. In a hard market like the current one, advisers are in the best position to help small businesses navigate the crisis and future-proof their ventures against ongoing business risks.