SMEs are exposed

Carel Van Der Merwe, at Alexander Forbes Risk Services speaks about some of the issues facing SMMEs and enterprise-wide risk management, specifically in terms of IFAs and their businesses.

Broadly speaking this approach requires debate and consideration of several issues: aspects such as:-

* Operational risk management – eg premises protection against fire or burglary and/or the internal financing of risks;

* Risk Transfer – Purchasing insurance for selected risks and/ or contracting out of risk;

* Risk Retention – Where the risk is of such a nature that it has become predictable and the business owner can either provide for the financial loss and/ or the business owner is willing to take a calculated risk;

* Risk Avoidance – Where the risks need to be avoided for example where there is a new branch being opened or an acquisition that may take place.

There needs to be a balance between what is managed, what is insured and what is retained.

The risks businesses and owners face in a more complex and ever changing world need to be continuously considered as part of any businesses good corporate governance.

“Directors of all companies, including SMME’s can be held personally responsible for actions and decisions they make on behalf of the company, putting their personal assets at risk,” says Van Der Merwe.

Directors and officers liability insurance covers individual directors through advancing legal defense costs as well as indemnifying them for certain amounts for which they may be held personally liable. The cover protects the business owners personal assets.

The company itself is excluded from this cover and has to fund its own defense costs and any award made against it. These costs could deplete the company's reserves and even bring its future viability into question.

Van Der Merwe says this is of utmost concern to small-to-medium sized businesses where the financial success of the company and its directors are interlinked.