Small Business Insurance Cover South Africa

Sleepless nights aren’t uncommon when starting up a small enterprise. Alleviate some of the anxiety by knowing that your business interests are properly insured…

While business insurance might seem like yet another “additional cost”, it should really be seen as an investment that will offer security for the future and peace of mind. Above all, it’s important to ensure that the insurance products that you’ve purchased are both appropriate and adequate; you don’t want to find yourself in a position where you realise you’re not covered, after the event.
While you simply can’t afford not to have insurance, there are ways of reducing one’s premiums without running the risk of crippling the business in the event of disaster. As always, it’s a case of having the right knowledge on hand to empower you in making these decisions.
Under the umbrella
There are many insurance options out there, and once you’ve done your homework you’ll most likely end up with a package that includes a few products suited to your business. Jonjon Smit, Sales Director of CIB Insurance Solutions, advises that the following types of insurance, pertaining to the business itself and its staff, should seriously be considered:

1. 1. Physical assets

Fire, flood and storm cover – to cover a potentially catastrophic loss such as stock or machinery as a result of damage caused by natural perils.
Theft cover – this covers your business’s stock and equipment in the event of a robbery or hold-up.
Motor cover – particularly important if the business relies on sales representatives or transportation and delivery of goods. Smit emphasises that it’s important to specify exactly what the vehicle will be used for and that the cover taken is as comprehensive as possible.
Business interruption cover – this cover ensures that all operating costs, including wages, can be paid in the event of a catastrophic loss. The business owner will have to select the indemnity period, with options from three to 24 months, which is the maximum time expected to get the business back up and running at the level it was before the loss occurred. The rate at which business interruption cover is charged is based on looking at the company’s net profit as well as its running costs over the selected period of time.
Public liability cover - this covers the loss or damage to a third party (or a third party’s property), while on a business owner’s premises. This cover can also include products liability cover (i.e. if the business manufactures goods), defective workmanship (i.e. if the business repairs goods) as well as food poisoning (i.e. if the business produces or supplies food and beverages). Work-away cover is an additional extension to this cover, designed for business owners who work at their client’s premises
(i.e. a contractor).
Email and internet insurance - with the many liabilities and losses that have resulted from matters in the online arena, insurance companies have introduced new products to insure your machines in the event of virus destruction, and to cover claims made by third parties (or even employees) for libel and slander on the web.
Credit insurance – if you’ve taken out big loans to start up your venture, or know that the risk of unpaid debt might cripple the business (not to mention your personal financial security), you can also consider credit insurance that will settle outstanding amounts in this event.

1. 2. Human capital

Key person insurance - a business can experience terrible setbacks if you lose a key person who specialises in an area that no one else is familiar with. Key person insurance works in two ways – firstly, in giving funding to find and train a replacement and secondly, in compensating for the interim cash flow losses. The monthly premium amount is based on the employee’s salary.
Employees’ insurance - many businesses take out life and disability insurance to cover both the company and employees against injuries that occur while at work. If the nature of the work puts the employee at particular risk, consider Industrial Special Risk insurance. Providing a contribution towards your employees’ health insurance is a compelling incentive that you may want to consider (see the April/May 2010 issue of Your Business for more on how to choose a medical aid).
Travel insurance - if your employees are going to travel frequently as part of their job, some sort of travel insurance needs to be provided by the business.
Buy-and-sell insurance - if you own a business together with a partner, it is important to know what will happen to their share of the business if the partner dies, becomes disabled or would like to retire. Having a buy-and-sell policy will mean that the share of the deceased or disabled partner is bought back – and that the family can be fairly compensated for the asset without putting the business in difficulty. Buy-and-sell insurance is a long-term insurance. The premium would be based on the initial amount invested, and would take inflation into account.
Making a policy decision
If reading the list above puts you into a flat spin, relax. There is such a thing as over-insuring, and chances are you don’t need every type of insurance out there. But you do need to know what your needs are, and seriously evaluate the risks that your business faces. Lourens Joubert, head of corporate and commercial underwriting at Santam suggests going through a simple risk management process:
Identify all potential exposures to your business. These exposures can broadly be classified as natural perils (wind, storm, lightning etc), crime-related perils (burglary, armed robbery, hijacking etc),and accidental damage (motor vehicles etc).
Evaluate these exposures in terms of the likelihood of the event happening and the size of the loss should the event take place. For example, the likelihood of having a vehicle accident is high and the size of the loss would be medium-to-large; the likelihood of a fire is relatively low but the size of the loss would be enormous.
Implement risk control by using the info ascertained above you can decide whether some of the risks can be eliminated or reduced (i.e. installing an alarm, making an arrangement for suppliers to drop off stock rather than collecting yourself).
Finance the residual risks that can’t be eliminated or reduced. Insurance is the most viable way of doing this.
While the simple process above is helpful for your own benefit, Smit recommends requesting a professional risk valuation and survey by an insurance company. “Business owners do not necessarily have the expertise to assess the risks involved in the business,” he says. “An experienced broker would be able to do the risk assessment and advise the client on the correct covers and options available.”
Choosing a broker
Eric Parker, in his book Eric Parker’s Road Map to Business Success also strongly recommends appointing a reputable insurance broker as a first step in insuring your business. The reasons he gives for this are as follows:

• A broker who has several clients within a specific industry sector is well aware of the particular risks this sector poses.
• Having access to the product ranges of several insurers, brokers are in a better position to provide the most appropriate cover overall.
• By building a long-term partnership with one broker, you reduce the dual risks of excessive cover and/or duplication of cover, as often happens if you purchase insurance cover piecemeal, and from different sources.
• Dealing with one firm makes it easy to set up a monthly payment plan that covers all your insurance needs and helps you to keep control over insurance spending. It also simplifies the handling of queries and the claims procedure.

If you don’t want to go the route of using a broker, you can phone different insurance companies and get them to quote individually, or make use of an online broker. When undertaking insurance research on your own, make sure that you are always comparing “apples with apples” and focus on value rather than price. It is important to take out insurance with a reliable and well-established provider with a proven track record.
Right-size those premiums
Clint Harker of Pinion Insurance Brokers offers the following key tips for small business owners looking to bring down their insurance costs:
Conduct an annual review
It’s vital to keep up to date with what you’re covered for and how much you’re paying for it. There may be unnecessary insurance that you’re paying for and that you can remove; or you may be over-paying for vehicle insurance because you have not adjusted for its depreciated value. On the other hand, Joubert warns against not adjusting insured values in accordance with inflation. While your monthly premiums may increase, the long-term saving is well worth it. He also advises that businesses that import machinery and equipment must take into account any substantial changes in the exchange rate.
Take small steps to reduce risk
Carrying out simple tasks like regular maintenance of equipment, or improving security systems, can help to reduce your costs. Indicating all the risk reduction measures that you’ve implemented will show the insurance company that you are serious about your business and will assist you when negotiating a preferential premium. You should also ask them what they consider to be the main insurance risks for your business.
Find out about business packages
A combined package that offers a range of cover, such as property, liability and business interruption, may be an affordable alternative. Some professional associations are also able to negotiate competitive group insurance rates for members. Find out if you are affiliated with any such organisations. If you are part of a franchise group, you will probably benefit from preferential rates. CIB insures Famous Brands’ stores and because there are over 500 members it is possible for them to offer a significantly reduced insurance rate to each store.
Once you’ve armed yourself with the knowledge of what your business’s risks are, and the options that exist to combat these risks, a last word is to let common sense be your primary guide. You certainly don’t need each and every insurance product available on the market (your insurance costs alone might cripple your business!) but securing an appropriate and adequate amount of cover is one of the soundest investments you’ll make.