The four biggest myths about short-term insurance for small business

The four biggest myths about short-term insurance for small businesses include that insurance advisers are just product specialists, only large companies need it, insurance cover is a one-size-fits-all agreement 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 variety of challenges at different phases of their business’ journey. One challenge that emerges right from the start is the responsibility every business owner has to understand its unique risk exposure and find ways to be as prepared as possible for the unexpected, Karen Rimmer, head of distribution at PSG Insure, says.

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Myth 1: Insurance advisers are just product specialists

Rimmer says one of the biggest myths in the small-to-medium-enterprise (SME) insurance space is that short-term insurance is simple enough to warrant taking a DIY approach. A big part of this misconception is rooted in the idea that insurance advisers are simply intermediaries and that cutting out the middleman may save valuable money and resources.

“It is crucial to understand that insurance advisers are seasoned 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 they are also risk and business specialists in their own right.

She says this is particularly true within the context of the current hard market, which is characterised by higher insurance premiums, more stringent underwriting criteria and the relatively reduced capacity of insurers to shoulder higher levels of risk.

“Stricter underwriting often results in policy wording being reviewed and made more explicit in terms of what the client’s responsibilities are. Here, advisers can assist in helping clients navigate industry terminology and gain a clearer understanding of what they are expected to do to prevent losses.”

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Myth 2: Only large companies can benefit from short-term insurance

People often think only large companies need to have short-term insurance, as they have relatively larger 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 collateral they may need to secure financing in the event of an unexpected disaster. For small businesses, on the other hand, the potential loss that follows risks like cybercrime, looting, fire or employee-related damages can be irreversible.”

She reminds us that insurance for business interruption was a lifesaver for many small businesses that took a prudent approach to managing unforeseen risks like the Covid-19 pandemic. In the case of the July riots, small businesses who had taken out a SASRIA policy extension before the event, benefited from the safety net that this very specific cover provided.”

Rimmer points out that in cases such as these, having the right type of insurance cover often made the difference between a business forced to close its doors or being able to recover its losses enough to remain operational.

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Myth 3: Short-term insurance cover is a one-size-fits-all agreement

Rimmer says another misconception is that insurance policies are fixed and that insurers are inflexible in terms of the cost of the monthly premium and the nature of the cover available to small businesses.

“In fact, policies can be tailored to suit the unique risk profile of an SME, as well as its level of affordability. Here, the role of the adviser is to help business owners assess what they can afford, based on the risks that lie ahead and how they position their business in a way that mitigates any form of future business interruption.”

In some cases, small businesses choose to self-insure certain items to keep the price of the premium as low as possible, while others may choose to take on larger excesses to cut the monthly cost of the premium.

The important factor to consider here is that advisers, equipped with the right knowledge and information on what a company’s needs are, can help tailor insurance to meet the unique profile of the client, 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. While a premium may affect the cashflow of a business in the short term, paying monthly premiums is far more affordable and manageable than covering the replacement value of premises, a company vehicle or the cost of litigation, should a crisis hit,” Rimmer says.

“Taking the long-term view and thinking about insurance as a way of ensuring that a business is set up to last for the long haul is therefore essential.”

Risk and the road ahead

The influx in requests for quotations from small businesses in a number of sectors is testament to the fact that business leaders are realising the importance of managing risk as a matter of priority, she says.