The costs of insurance is one of the biggest bugbears for many businesses. But those that under-insure or purchase inappropriate cover run the risk of substantial losses, says Bryan Verpoort, Head of Corporate and Business Insurance at Standard Bank.
Economic conditions remain extremely tough and many businesses are looking to cut costs. Insurance is being scrutinised as a result, but reducing cover will obviously expose companies to greater and perhaps unforeseen risks that can ultimately destroy a business.
“We see this quite often with businesses that rush to take out off the shelf policies. This fails to take into account the environment and evolving risks for businesses, like labour unrest or political unrest in a foreign country and, more recently, load shedding by Eskom,” says Verpoort.
The national financial adviser networks can play an important role in finding the best insurance solutions to meet the needs of companies. Lower premiums may be achieved if these advisers shop around for the most appropriate coverage at the best price and can also tailor solutions for specific needs and localised business or trading conditions.
“Going direct is not always what it seems. It is sometimes better to avoid general policies as there is a growing need for more specialised coverage,” says Verpoort. “Most businesses have coverage for the fire resulting in shutdown, but not what is called business interruption insurance for the loss of sales and income during the period of the shut down.”
Another common mistake is failing to update policies or to allow for changed circumstances. “Either can make an active policy null and void.” Businesses are also not doing enough to take action themselves to reduce premiums. “For example, simply installing an alarm system or developing a workplace safety policy to reduce occupational injuries and hazards can help bring premiums down,” he says.
Companies need to improve their understanding of what is excluded from policies too. “We find many business owners are not addressing these risks at executive level, but leave them to operational managers to take care of.”
He recommends the use of a commercial insurance broker. “It is critical that brokers understand the needs of a business and walk the risk. They can only tailor the best solutions if the risk is clearly understood. Too often, lip service is paid to this area, leaving little understanding of the cost implications and evolving operational and trading risks,” says Verpoort.
Sometimes, having a high deductible (or excess) that simply reduces premiums may not make business sense. This is the amount you pay out of your pocket before the insurer pays, although the insurance premiums will be lower. “Businesses often look to increase the excess where they can, as it can bring down the pay-away cost of insurance as an operating expense.
But this needs to be balanced against affordability and the cost benefit achieved in doing so.” Standard Bank has seen an increase in potential claims for damages caused by load shedding over the past few months – but this is often based on an inaccurate understanding of the coverage being provided. Verpoort says, as a general rule, it is not covered. Business interruption insurance includes perilous events like wind, snow, fire, or an explosion as the underlying cause. “The reality is in 90% of cases the policy won’t respond to load shedding damage. Businesses should therefore be careful in acquiring business interruption insurance on the expectation that consequential revenue loss would be covered. In most instances this loss would not.”