The turbulent geopolitical climate is creating uncertain economic conditions across the globe. In South Africa, several unique challenges are worsening the effects of global risk factors, including load shedding, hefty fuel hikes and ongoing inflationary increases. For entrepreneurs across the country, the small business environment has become a difficult terrain to navigate. This has necessitated a renewed focus on risk management, as a way of mitigating the potentially devasting effects of an unplanned loss.
This is according to Karen Rimmer, Head: Distribution of PSG Insure who notes that small businesses are vital to the growth of the South African economy. “The past few years have demonstrated how vulnerable South African small and medium-sized enterprises (SMEs) are to business interruption risks. Their survival therefore relies greatly on how they are positioned to recover from losses for which they are probably not prepared. This is where the importance of partnering with a trusted short-term insurance adviser can play a key role in minimising the effect of set-backs, thereby enabling the ongoing growth and development of small businesses.”
According to McKinsey, SMEs across South Africa represent more than 98% of the country’s businesses and contribute just under 40% to GDP. Furthermore, small businesses employ between 50 to 60% of South Africa’s workforce. When these SMEs, which are a critical cog in South Africa’s economic engine, are shut down by economic risk factors, the effects are far-reaching and have broader macroeconomic implications.
On this point, Rimmer argues that the South African small business environment is unrelentingly difficult for SMEs in their fledgling years. “For those who do succeed in remaining in operation during their first few years, there are a number of risks that they will be faced with down the line. Investing in contingency plans should therefore be a key component of a business’s long-term growth strategy.
According to a recent report published by Research and Markets, climate change-related disasters, which are increasing in frequency and severity, pose a significant threat to the operations of small businesses. Recent floods in KwaZulu-Natal, provide an example.
Property damage risks are becoming more likely due to extreme weather. In addition, businesses should not underestimate the ability of social unrest to disrupt operations. Regardless of the trigger, the cost of property, equipment and stock damage can deal a crippling blow to a small business. Sufficient SASRIA cover to ensure protection against these systemic risks is therefore an essential part of future proofing one’s business. Furthermore, short-term insurance can drive better risk management practices within a company, thereby helping to mitigate losses in the long run.
Rimmer explains that the impact of business interruption (BI) on SMEs can be devastating. “Interruptions can occur due to the above-mentioned systemic risks as well as a multitude of other reasons including breakdown or damage to essential company machinery and equipment. The effect of the BI loss is apparent on two fronts: firstly, the cost of the damaged property and secondly the loss incurred as a result of not being able to operate for a period of time. In addition, the cost of having to pay wages to workers that are unable to perform their duties during the downtime.”
According to Rimmer, short-term insurance provides a way of protecting a business’s bottom line by acting as a safety net when things go wrong. “First, by preventing a loss from occurring in the first place through implementing proper risk management measures as advised by insurance experts. And second, by putting the business back in the financial position it was in before the loss occurred, if the right level of cover has been purchased. This ensures that the business is able to continue focusing on growth and development. Business owners should, , always consult an insurance adviser to ensure they have matched their insurance cover to their unique business risks, and have the correct level of coverage,” she concludes.