South Africa’s economic empowerment roadmap, the National Development Plan (NDP), states that by 2030, approximately 90% of the country’s jobs would have been created through small and medium-sized (SME) businesses.
Seen as key drivers of economic growth and employment, the pressure for these enterprises to succeed in an already distressed economic environment is overwhelming.
Living with pressure
Unfortunately, so many small businesses fail to sustain themselves and realise any real profit. The reality is that 70% to 80% of small businesses fail in their first year, while only about half of the 20% to 30% remain in business over the next five years.
It therefore stands to reason that a contributor to success is planning for all possible eventualities. The challenge is that most small business owners do not have access to appropriate information nor the financial means to prepare. Therefore, comprehensive insurance is critical in protecting this vital sector and preventing entrepreneurs from losing their life savings or pension funds.
The unfortunate reality is that most companies focus on risks that are likely to affect their bottom line rather than those that could possibly destroy their business. It is essential to have a helicopter view of a business at the very outset, which can be a tall ask for anyone just starting out. This is where broker advice and expertise play an invaluable role.
Risky business
The risk environment is changing faster than ever before; brokers need to stay ahead of the curve in order to provide customers with the best advice and protection. Evolving technology, the increased focus on the Internet of Things (IoT) and machine to machine communication (M2M), equals an increased exposure to cyber risk.
At a cost of R5.7 billion, annually, cyber risk is not just impacting South Africa’s big corporates, SMEs are also feeling its substantial financial and reputational impact.
Zurich’s latest SME Survey revealed that South African business owners view business technologies as one of their top growth opportunities. Seeing that most SMEs are unable to invest large amounts of capital in IT infrastructure, the practice of employees bringing their own, often unprotected, devices or even software to work, increases the risk of private company data being accessed.
Not only do some SME owners feel that they won’t be affected by cybercrime but most just do not have the resources (financial or otherwise) to assess and mitigate against any potential threats.
Additional exposures
Furthermore, once the Protection of Personal Information (PoPI) Act comes into full effect, a number of SMEs will face additional exposures, with severe legal and cost implications if data breaches occur.
SMEs can, therefore, benefit from insurance products that not only provide cover against cyber risk from a financial perspective, but also provide solutions that can assist in containing reputational damage as a result of a hack.
Brokers need to make sure that their customers are aware of these exposures and are fully compliant with their insurer’s requirements to ensure they are paid out when an incident occurs. Many SMEs do not realise that there are often policy exclusions related to the above, resulting in claims being rejected.
Tightening purse strings
The knock on effect of consumers who are also having to tighten their purse strings in the current economic climate will also be seen in the cash flow and profit margins of SMEs. Accordingly, SMEs will need to review their own spending patterns, which will require insurers to provide options that still deliver adequate cover for increasing exposures and market risks, but at an affordable price.
Informed insurance advice from a broker, who has an in-depth understanding of the risks SMEs are exposed to, will help equip South Africa’s entrepreneurs with the right tools to facilitate sustainable business growth and protect their existing operations.
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