How your insurance needs change as your business grows

Johannesburg - Having commercial insurance in place can help small businesses sidestep some of the risks they may encounter on the road to expanding their ventures. But insurance is not a once-off purchase. Rather, it is a fluid financial product that should evolve and adapt to each business’ unique needs, as it grows. Expansion often comes with an increased risk exposure and changes to a business’ risk profile. Working closely with an adviser can help business owners fill these safety gaps and ensure that their risk mitigation strategy remains airtight in the long term.

Offering her advice on this topic is Karen Rimmer, Head of Distribution at PSG Insure. As she explains: “Whether it's an increase in the number of employees, expansion into new markets, or the introduction of new products or services, each change brings with it a unique set of risks. Regularly assessing these evolving risks is essential for determining the adequacy of your current insurance coverage.”

Business growth and higher risk exposures

Growth often involves an expansion of physical assets, such as office space, manufacturing facilities, equipment or warehousing. In these cases, it is crucial to ensure that the property insurance, as well as cover for the business’ assets, keep up with the rate of the change.

In addition, the expansion of a business can involve a higher exposure to liability risks. Liability claims can arise from various sources, including customers, employees or third parties. For this reason, upgrading the liability coverage to reflect the increased scale of operations is imperative. This may include general liability, professional liability and product liability coverage, depending on the industry.

Adding to this, Rimmer says the same can be said about the need for cover against cybercrime. “The damage caused by cybercrime also often extends far beyond the cost of the stolen data or the cost of a breach. There is also ongoing and potentially long-term reputational damage to be considered. In a small business, the effects of a single cyber-attack could prove to be financially devastating.”

Although small and medium enterprises are by no means immune to attacks from opportunistic criminals, the more a business grows, the bigger its exposure to cybercrime becomes. And this is due to a number of factors.

For example, a larger staff complement exposes a business to a greater potential for human error, misjudgments and breaches of protocol. Additionally, the more a business’ database grows, the more valuable that information becomes to criminals and the stakes become much higher in terms of the potential for financial loss.

At any one time, companies can store and process data linked to its suppliers, its service providers and its customers, as well as highly sensitive and confidential information on their operations. Protecting these growing datasets should be a number one priority, particularly given that South Africa is currently one of the continent’s most prominent cybercrime hotspots.

Therefore, in addition to having adequate cover in place to protect valuable information, businesses that are entering their next phase of growth will also have a broader responsibility to implement and enforce risk management strategies that will prevent cyber-attacks.

Adding to this, Rimmer shares another one of the most significant risks that are shaping the commercial insurance landscape in South Africa, which involves the impact of unpredictable and extreme weather patterns, as a result of climate change. “Not only does extreme weather pose a risk to businesses in terms of destruction of property or damage caused to assets, but these risks can also materialise as supply chain disruptions.

Incidents caused by natural disasters, geopolitical events or unforeseen circumstances in suppliers' networks can lead to significant financial losses. The risk caused by these kinds of unexpected delays in the manufacturing or delivery of stock increases as businesses grow and become more reliant on the efficiency of their supply chains. This is particularly true of small businesses in the goods export market, where business owners are advised to take out cover for product guarantee or product recall in addition to their more general policies.”

Regular insurance reviews are essential

As Rimmer concludes, business owners may at first opt instinctively for minimal coverage as a cost-saving measure, but as businesses grow, this may need to be reviewed. Regular insurance reviews should become second nature. By conducting annual or bi-annual reviews, or taking stock, business owners can ensure that any newly acquired assets are accounted for and that they have a safety net against any emerging risks.

“By leveraging the expertise of an adviser, businesses can find the most cost-effective and comprehensive way to tailor insurance solutions to their specific needs as their operations grow.  This collaborative process can go a long way in ensuring that the client's insurance portfolio remains aligned with the dynamic nature of the risk landscape.”