Businesses to prepare for a changing risk management landscape in 2016

Annelie Smith, Corporate Executive at Risk Benefit Solutions (RBS)

Current marketplace conditions and the economic environment are testing businesses from all angles. While the fluctuating exchange rate may not directly impact a business’ day-to-day bottom line, it could potentially have dire effects if a business’ replacement ratios for their assets, such as machinery and equipment, are not reviewed on a regular basis.

This is according to Annelie Smith, Corporate Executive at Risk Benefit Solutions (RBS), who says that many businesses operating in the manufacturing sector import equipment or machinery beyond South Africa’s borders, purchased with foreign currency. “As the Rand weakens, this equipment automatically becomes more costly to replace, as all equipment purchased a year ago automatically increases in Rand value.

“The onus is on business owners to make contact with their insurer or broker to re-evaluate their cover to avoid being uninsured and to ensure that the necessary risk management policies are in place.  

Smith explains that should a machine break down and need replacing, a business owner may find that due to currency depreciation they are no longer insured for the full value of a new machine. “The cost of equipment can run into the millions and, without sufficient funds available to replace the machine, the owner can quickly find themselves in financial trouble.” 

The fluctuating exchange rate is just one of the many challenges facing local businesses, says Smith. “This, coupled with recent droughts, cyber-attacks, and disruptive technologies, are demanding more innovative risk management strategies to meet these unpredictable challenges.” 

She points to the 2016 Allianz Risk Barometer which revealed that macroeconomic developments and market developments were tied in first place as the leading risk for businesses in Africa and the Middle East in 2016. Natural catastrophes and changes in legislation were tied at second, with business interruption and cyber incidents in the third place. 

“Last year we saw the damaging effects of load shedding on businesses, both big and small. We are now witnessing the damaging results of drought in many areas across the country. Fast emerging as a new threat to local business is the rising occurrence of cybercrime incidents (previously holding the fifth position in the Allianz Risk Barometer). 

“The risk management landscape is increasingly becoming more challenging and perplex as the world becomes more susceptible to emerging threats. Managing these potential risks requires businesses to build more resilient risk management processes – and ones that are reviewed regularly - so they do not find themselves under-insured should the unforeseen occur. 

“This is not the last we will be seeing of the increasing impacts of currency fluctuations, weather disruptions, and technological challenges. The best cure, as they say, is prevention,” concludes Smith.