Business insurance and global risks: The importance of understanding risk in your business

Nirven Maharaj, Mutual & Federal’s Head of Underwriting for the commercial & Africa.

In today’s world, understanding and insuring against the risks which could adversely affect ones business is key. In many instances this relates to insuring against small financial losses such as damage to a company vehicle, however the most important aspect is to ensure that these potentially crippling risks are mitigated.

Historically, these risks related to damage of property and goods due to fire or theft. Risks of this nature were easy to understand and insure against. However, with the world fast becoming a global market, new risks have emerged which could have catastrophic repercussions for any business. This fact was highlighted during the Japanese earthquake and subsequent tsunami of March 2011 where many businesses all over the world came to a halt due to the losses incurred by their suppliers based in Japan. This was a risk that most did not foresee.

According to Nirven Maharaj, Mutual & Federal’s Head of Underwriting for the commercial & Africa businesses: “It is therefore imperative for businesses to conduct a comprehensive risk assessment of the entire value chain, to understand which areas and scenarios could have a potential negative impact on the business.” This can sometimes be difficult, especially in the manufacturing environment where components can come from various suppliers and the raw materials used to manufacture those components can also be sourced from anywhere in the world. The key to mitigate this supplier risk is by assessing the dependency a business has on each particular supplier and determine the impact on the business if the supplier has a loss which prevents it from fulfilling its customer demands. If the risk is substantial and could result in the business experiencing major financial losses, it should be mitigated by putting in place a specific insurance solution, even if the likely hood is remote.

Maharaj added: “Although technology has helped drive growth and efficiency within the business environment, it also brings with it new risks. These risks could include cyber-terrorism or theft of data, which could bring a business to a standstill. Being relatively new, these risks have not been adequately addressed until recently. Understanding and making provision for a business’s dependency on technology and data is imperative going forward as this risk will be one that will emerge even more over time. One may ask what the best approach would be to properly understand and manage these risks.”

According to Maharaj the best approach would then be to use a qualified intermediary who understands the business and its value chain. The intermediary will have the required knowledge and experience to provide the best solution to adequately mitigate the risks the business does not want to self-insure.

He concluded:” It is just as important for business owners to choose an insurance company that understands their business as this will ensure that losses are evaluated correctly thus making it easier to protect what’s important to you.”