The top four myths about short-term insurance for small businesses include that insurance advisors are only product specialists, only large businesses need it, insurance coverage is a one-size-fits-all deal, and that business insurance is not affordable.
Running and managing a successful small business in South Africa is no small feat as entrepreneurs face a number of challenges at different stages of their business journey. A challenge that emerges from the outset is the responsibility each business owner has to understand their unique risk exposure and find ways to be as prepared as possible for the unexpected, says Karen Rimmer, head of distribution at PSG Insure.
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Myth 1: Insurance advisors are only product specialists
Rimmer says one of the biggest myths in the small to medium business (SME) insurance space is that short-term insurance is simple enough to warrant a DIY approach. Much of this misunderstanding is rooted in the idea that insurance advisors are just middlemen, and that cutting out the middleman can save valuable money and resources.
“It is critical to understand that insurance advisors are experienced professionals who undergo mandatory and ongoing training and development to understand the intricacies of the risk landscape.”
Their role involves much more than just selling insurance products. Rimmer says they are armed with the most in-depth information on industry developments and events, while also being risk and business specialists in their own right.
She says this is especially true in the context of the current tough market, which is characterized by higher insurance premiums, stricter underwriting criteria and the relatively reduced capacity of insurance companies to take on higher levels of risk.
“Stricter underwriting often results in the policy formulation being reviewed and made more explicit in relation to what the customer’s responsibilities are. Here, advisors can help help clients navigate industry terminology and gain a clearer understanding of what they are expected to do to prevent loss.”
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Myth 2: Only large companies can benefit from short-term insurance
People often think that only large companies need short-term insurance, as they have relatively greater risk exposure due to the size of their workforce, business premises and company equipment.
“However, the reality is that larger companies often have more extensive resource pools, greater access to emergency funds and the security they may need to secure funding in the event of an unexpected disaster. For small businesses, on the other hand, the potential loss that follows risks such as cybercrime, looting, fire or employee-related injuries can be irreversible.”
She reminds us that business interruption insurance was a lifesaver for many small businesses that took a cautious approach to dealing with unforeseen risks like the Covid-19 pandemic. In the case of the July riots, small businesses that had taken out a SASRIA insurance extension prior to the event benefited from the safety net provided by this very specific cover.”
Rimmer points out that in cases like these, having the right type of insurance coverage often made the difference between a business being forced to close its doors or being able to recoup its losses enough to stay in business.
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Myth 3: Short-term insurance coverage is a one-size-fits-all deal
Rimmer says another misconception is that insurance policies are fixed and that insurance companies are inflexible about the price of the monthly premium and the nature of the coverage available to small businesses.
“In fact, policies can be tailored to suit an SME’s unique risk profile as well as its price point. Here the adviser’s role is to help business owners assess what they can afford based on the risks ahead and how they position their business in a manner that mitigates any future business interruption.”
In some cases, small businesses choose to self-insure certain items to keep the cost of the premium as low as possible, while others may choose to take on higher deductibles to reduce the monthly cost of the premium.
The important factor to consider here is that advisers, equipped with the right knowledge and information about what a company’s needs are, can help tailor insurance to meet the client’s unique profile, she says.
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Myth 4: Business insurance is not affordable
“The myth that short-term insurance is unaffordable for small businesses is decidedly short-sighted. Although a premium can affect the cash flow of a company in the short term, paying monthly premiums is far more affordable and manageable than covering the replacement value of premises, a company car or the costs of litigation if a crisis strikes,” says Rimmer.
“It is therefore important to take a long-term perspective and think of insurance as a way of ensuring that a business is set up to last for a long time.”
Risk and the way forward
The influx of RFPs from small businesses in a range of sectors is evidence that business leaders are aware of the importance of managing risk as a priority, she says.
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