Winning new business? Don't let your insurance fall behind

Johannesburg - For many South African businesses, spring marks the start of one of the busiest periods of the year. Retailers begin building stock ahead of the festive season, manufacturers land export orders they've been chasing since autumn, and contractors pick up tenders that stalled over the colder months.

While this growth is welcome, it can also create unexpected insurance gaps if risk exposures change faster than policies are updated.

"Growth is a good problem to have, but it is also one of the times when businesses are most at risk of developing gaps in their insurance cover," says Ryno de Kock, Head of Distribution at PSG Insure. "As stock levels, contract values, vehicles, staff and equipment change, the cover that suited the business at the beginning of the year may no longer reflect the status of its current risk exposure."

The mismatch is easy to understand. Most commercial policies are reviewed once a year, at renewal. Business operations can change substantially in the months in between, and updating the insurance is rarely the first thing on a busy owner's mind.

“A client wins a big contract or brings in extra stock ahead of Black Friday, and understandably, getting the work done comes first. Updating the insurance is the thing that gets left for later. The trouble is that if something goes wrong in that gap, whether it’s a fire, a break-in or a claim from a new client, a policy that was perfectly adequate in March can come up short in October,” says de Kock.

The scale of the gap is worth noting. Industry figures show more than 385,000 new companies were registered in South Africa last year, yet fewer than one in five small businesses carry any form of formal insurance, and around 80% don't survive their first five years often not because the idea was flawed, but because the business couldn't absorb a shock it hadn't planned for.

Even businesses that do have cover aren't automatically in the clear. Most commercial policies include what's known as an “average clause”. If a business is found to be underinsured at the time of a claim, the payout is reduced in the same proportion.

“For example, a retailer carrying R2 million in stock but insured for R1.2 million could have a valid claim cut by 40%, regardless of how the loss happened, says de Kock. "This is why sums insured need to keep pace with the changing value of a business's stock and assets."

According to de Kock, three areas tend to move fastest during a growth spurt, and are the ones most often left unreviewed:

• Stock and inventory. Retailers and wholesalers building up for spring and the festive rush should ask their broker about declaration-based cover, where the sum insured moves with the actual stock on hand each month, rather than sitting on a fixed figure that suited June but not November.
• New contracts. A large corporate or public-sector client often builds liability limits, performance guarantees or professional indemnity requirements into its contract terms - obligations worth checking against existing cover before work starts, not after a dispute lands.
• Extra assets and people. Additional vehicles, machinery, equipment or staff brought on to service new business all add exposure. Not declaring these changes to an insurer can also affect how a future claim is assessed.

For business owners heading into a busier season, de Kock recommends comparing sums insured against current stock and asset values rather than relying on the figures used at the previous renewal. Business owners should also tell their brokers about any new contracts, tenders or major clients before the work begins.

They should confirm that business interruption cover reflects current turnover rather than the figure set 12 months ago and consider whether a declaration-based policy would be suitable if stock levels fluctuate with the seasons.

“Businesses do not need to wait until their next renewal date to review their insurance. A short conversation with a broker now, before the spring rush is in full swing, is generally far less painful than a claims query later,” concludes de Kock.