Commercial property insurance advise for young South African entrepreneurs

Johannesburg - South African small businesses are faced with several unique challenges as well as specific types and levels of risk. A strategic approach to long-term growth and a solid risk mitigation strategy can help to protect your venture from the unforeseen so that your business can become one of the millions that fuel the South African economy. 

In an effort to assist business owners in getting their businesses off the ground safely, Karen Rimmer, Head of Distribution at PSG Insure shares three pieces of advice on what to consider when purchasing commercial property insurance.

Insurance: protecting your business

“It’s essential for you to consider that, in the event of an unfortunate accident such as water damage caused by a leak, a fire or accidental equipment damage, not being insured could end up costing you far more than the total of your insurance premiums,” says Rimmer.

In a small business, where cashflow is the most important factor, a sudden and unplanned financial loss can be devastating and very difficult to recover from. This is why property insurance cover is a necessity.

“You could therefore think of insurance for your business in terms of the three important “Ps” – “protection, preparation” and “peace of mind,” she adds.

Consider the difference between market and replacement value

One of the biggest mistakes that first-time business owners make when insuring their commercial property is to under-insure. This is why it’s vital to firstly work with a valuation expert to provide an accurate valuation of your property, and then to secondly seek advice of an insurance adviser who will provide you with a working understanding of how insurance may benefit your specific operation.

“As a first port of call,” says Rimmer, “you’ll need to understand the difference between market value and the replacement value of your property, and also ensure you do not make use of the municipal value. Another thing to keep in mind is that market value also includes the land value, which should be ignored when determining the insurable value.”

Generally, the market value is the amount that the property is worth in relation to surrounding properties that are similar in size and position. The purchase price can either be higher or lower than this. Replacement value, however, considers the amount that would be needed to rebuild the property from scratch and accounts for the replacement of the structure’s fixtures and fittings additional costs such as cost of demolition and disposal of salvage. Insuring property for purchase price alone will not cover the cost of its complete destruction in the event of disasters such as a fire or flood.

The finer details explained

“Commercial property insurance works a bit differently to home insurance, in that multiple sections could be required to ensure sufficient cover. Commercial insurance would need to be taken to insure the building, with office contents and electronic equipment type risks, each under their own section,” says Rimmer.

A same minded approach would be required where stock would need to be separately insured from plant and machinery. Bear in mind that commercial insurance policies are custom tailored to each client’s business need.

“In general, the best way to ensure that your experience with commercial insurance runs smoothly, is to lean on the experience of an adviser, who will give you sound advice on risks that are specific to your sector, geographical location, operational requirements, and working arrangements.

Be sure to ask questions and empower yourself with expert opinions and advice that will help you to make informed, strategic decisions about the future of your business,” concludes Rimmer.