Karen Rimmer | What you need to know about insurance for your small business

For small business owners, it’s important to keep a close eye on how you allocate your hard-earned money to your business. Cash flow is one of the biggest limitations for many small businesses in the sector, and if something unexpected happens (such as a fire or robbery at your premises), you would need sufficient short-term insurance to safeguard your business’ operations against any significant losses.

While insurance can put strain on your business’ cash flow, it’s important to understand that the monthly costs of your insurance premiums are significantly more manageable and affordable than the cost of starting over if disaster strikes and your business does not have any cover in place. This is especially important given that small businesses operate in an environment of unpredictability, with policy uncertainty, rising fuel costs and load shedding posing immediate risks to business operations.

To help small business owners navigate this space, Karen Rimmer, Head: Distribution of PSG Insure provides some of the key considerations that business owners need to be making when it comes to adequately protecting their business.

The roof over your head

Your business premises must be covered against structural damage, such as that caused by fire, flooding or a burst geyser. If you are the owner of the premises, you are responsible for the maintenance of your building, but if you are renting, these responsibilities fall on your landlord. “Keep in mind, however, that some rental contracts include a provision that tenants are responsible for glass windows on the premises, or even cleaning roof gutters. So, it is best to get clarity to make sure you meet any maintenance expectations,” explains Rimmer.

Everything under your roof

Your business’ contents need to be sufficiently covered as well. Rimmer advises small business owners to remember that the cost of replacing everything must be factored in, keeping in mind that you must also take inflation into account. “You can also have all-risk cover for the items you take with you to and from work, such as your laptop and cell phone,” she says. 

Credit protection

In today’s competitive small business environment, being able to operate on credit has become part of everyday practice. However, conducting transactions on credit with unknown customers in an unpredictable economic setting is not without its risks, especially now with consumer budgets under extreme pressure from rising inflation and a cost-of-living crisis.

Commercial, political and economic doubt or danger may all impact debt repayments by clients. And not receiving the money you are due on time could be very detrimental to your business, putting a strain on cash flow and operations. Rimmer advises that trade protection effectively enables you to safeguard your small business against these risks. “The purpose of this cover is to protect a business against its debtors failing to pay outstanding debts due to insolvency, bankruptcy or defaulting,” says Rimmer.

Professional liability cover

Some professions provide advice and services to clients that can be costly if incorrect. Rimmer says that depending on the industry you’re in, there are specific elements to consider when determining the right cover to protect you against claims made against you. “The limit of indemnity is determined by various aspects based on your previous year’s gross fees and income, as well as current-year estimates and forecasts for the next financial year. To determine the premium and required excess, the insurer will look at your qualifications (and those of your business partners), insurance and claims history,”

Business Interruption

We live in an unpredictable economic environment with much policy and political uncertainty. These factors usher in a variety of risks, especially for small business owners. What some don’t know is that you can insure against certain factors that could interrupt your operations and, in some cases, put you out of business. Rimmer advises that safeguarding your business with Business Interruption cover is a prudent approach that could help your business recover. This type of insurance covers expenses such as lease agreements and stock supply during a period of downtime, after an unforeseen event strikes your business.

"Business Interruption insurance effectively enables you to return your business to the financial standing it was in before the unforeseen event occurred. This cover is especially important in South Africa where the SME sector contributes a significant portion of employment to the greater economy, making robust business continuity plans critical,” says Rimmer.

Sasria

Strike action is an essential democratic and constitutional right that enables affected parties to peacefully mobilise in response to employee or general societal grievances. However, in the event that peaceful strike action descends into chaos, Sasria provides cover against special risks such as civil commotion, public disorder, riots or terrorism, as in the case of the July unrest in 2021.

As Rimmer asserts: “By having Sasria cover in place, small businesses can ensure that they are able to restore their operations promptly in the aftermath of civil unrest. Business owners should take note that the maximum limit of indemnity is R500 million. Should there be a need for a cover that exceeds this amount, consult with your adviser to ensure you are sufficiently protected.”

Fidelity insurance

Crime is unfortunately a reality, and fidelity insurance is designed to protect you against losses incurred as a direct result of fraud or theft by an employee. There are a few technicalities, such as that the employee who commits fraud must have gained financially. When the crime was committed will also play a role. Determining how much cover you need will be based on your risk profile and other relevant variables, such as your number of staff, stock flow and possible incentives to commit fraud. If your business deals in selling luxury items for instance, the value of your stock is high and susceptible to crime, as it is physical stock that can be stolen. For small businesses, stock theft or even low-level financial fraud could be financially crippling without cover.

Cyber security

In today’s online world, Rimmer asserts that most companies make use of computers to interact with valuable company and client data. Most business owners today also make use of cloud technologies or local servers to store important company data. Unfortunately, both storage methods are vulnerable to hackers, which could lead to your intellectual property or sensitive client information being leaked or stolen. 

This fact makes it imperative for small businesses to have some form of cyber insurance to protect themselves and their clients from the possibility of a cyber-attack or event. “Not only can cybercrime-related events threaten the financial safety of a business, but they can also deal a significant blow to a company’s reputation. Businesses may even be held liable for damages stemming from the theft of a third-party data breach.

It is reassuring to know that you can insure yourself against these risks, but commercial insurance does tend to be complex. It is therefore best to consult an adviser who can help you to assess and quantify your unique risks,” Rimmer concludes.