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The importance of holistic planning for a range of unspecified risks we might face going forward

15 September 2020 Dini Nondumo, Head: Commercial Insurance at Standard Insurance Limited

To say 2020 has been a year full of surprises would be an understatement. The seemingly unforeseen challenges that have been brought to the fore around the world, stretch far beyond the principle impact Covid-19 has had on all four corners of the globe. The “one in a hundred years” event has had a monumental impact and effect on the small business sector.

Some traditionally small businesses have had the fortune of minimizing the impact of the pandemic on their operations, however these are very few and far apart. This begs the question of how these businesses had geared themselves up and were able to plan to survive this seemingly unforeseen event. One could strongly argue that these businesses had holistic Business Interruption advise and planning from their commercial/business insurance brokers. The kind of advice that not only provided them with what could be called traditional business interruption cover, but advice that prepared them for unforeseen risks of the future.

Given the economic importance and vulnerability of the small business sector to a third world economy such as South Africa, a business insurance broker’s role in providing advice can never be exaggerated. Closer attention is needed to understand how the small business owner thinks and acts relative to crisis management in the event of business interruptions. A 2010 small business research paper written by Brahim Herbane of De Montfort University in the UK highlighted how a crisis-based management approach needed to be adopted by small businesses of the future.

Small and medium size professional services businesses such as medical and legal practices can often be thought to be relatively immune to “non-tradition” business interruption cover. In an increasingly connected business world this can no longer be assumed. Increased connectivity to existing computer networks has exposed medical devices to new cybersecurity vulnerabilities. Client data breaches in the legal fraternity can appear to be obvious points of vulnerability for small legal practices, who very often can’t spend as much as their larger counterparts on cyber security systems. Healthcare is also another attractive target for two fundamental reasons: 1) a rich source of valuable data and 2) its defences are often weak for the same reasons as the smaller legal companies. Ransomware attacks on small private hospitals could cripple health systems and threaten human life.

A ransomware cyber security attack recently impacted a longstanding South African construction company. At the Creative Construction Conference in 2019 it was highlighted that the construction industry is making a shift towards digitization and automation (known as Construction 4.0) due to the rapid growth of information and communication technologies. In the case of the recently attacked South African company, the cyber attackers took over the company’s information and held it ransom until such time as the company would agree to pay the ransom amount. These new technologies being deployed and utilized by construction companies of all sizes are contributing to making the construction industry more connected. This in turn means business insurance advisors have to have more specific consideration of cybersecurity and highlight to their clients the paramount importance of having adequate cover as part of their business interruption risk planning into the future.

Global reinsurers have seen a dramatic rise in these kinds of attacks around the world, with South Africa being one the most impacted regions in recent times. The global cyber insurance market is estimated at approximately $70bn, with business cyber insurance accounting for about 60%. The South African market is one of the fastest growing markets due to the scourge of attacks in recent years and months.

This means brokers must be more forward thinking and holistic in their approach to advising clients on future unforeseen business risks. For insurers they must significantly increase their research and development on impending unforeseen business risks. If anything, Covid-19 has shown us that risks that were traditionally defined as “one in a hundred year” risks are making their appearance far more frequently; including those we have historically not seen yet.

Quick Polls

QUESTION

The intention with lockdown was to delay or flatten the Covid-19 infection curve and give both the private and public healthcare sectors time to prepare for the inevitable onslaught. Did the strategy work?

ANSWER

No, the true numbers are not reflected. Almost a quarter of South Africans may already have been infected with Covid-19
It’s too soon to tell. We will likely get a second wave with stringent lockdown regulations in place again
Yes, South Africa bought enough time to make a significant difference. We saved lives and have passed our peak. The worst is over
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