Dianne White
There’s an old adage that holds that prevention is better than cure. This principle needs to be applied more rigorously in the relationship between insurer, insurance broker and businesses, both big and small. Each partner in the short-term insurance value chain should always remember that it is better to mitigate or prevent the many risks that businesses face rather than trying to “fix” things following a loss event.
It should be the case that insurers have to make good on the promise to return firms to their pre-loss position as quickly as possible and with the minimum disruption, only when the steps taken to mitigate a risk fail. South Africa’s constantly evolving risk environment makes a holistic approach to risk management and business insurance more important today than ever before. While it cannot quite be described as hostile, the risk environment is indeed extremely challenging, and requires that insurers work closely with brokers and risk managers to limit overall exposures to risk events.
It is common knowledge that ageing municipal infrastructure, inadequate maintenance and poor service delivery increase both the frequency and severity of risk events. Fire is one example — poor performance from local fire departments has led to a sharp spike in claim pay-outs following industrial fires, and this has been the case for a number of years.
However, municipalities are not the only party at fault. Fires are costing the insurance industry millions each year due to a combination of municipal and private sector failures, including poor maintenance of fire protection equipment and inadequate fire protection within the built environment.
Aside from the risks posed by fire, South African businesses must also consider the impact of adverse weather events such as flooding and heavy storms. Damage due to flooding and hail can run into millions of rand and cause severe damage to buildings, manufacturing equipment, motor vehicle fleets and stock in trade at firms.
Hollard’s deep understanding of the risks that businesses face means that, with the assistance of our experienced commercial insurance broker partners, we are ready to assist businesses both with risk mitigation strategies and with structuring suitable insurance solutions that will pay out when these mitigation efforts fail.
An experienced insurer can help businesses secure cover for risk events that were previously unheard of. One such example is the inconsistent supply of electricity — the cost to businesses due to electricity outages can go way beyond lost production. A good example of these is the stoppages in industrial processes caused by the recent extensive power outage suffered in central Johannesburg.
Another bugbear for businesses in South Africa is organised crime, with cash-in-transit heists and ATM bombings making headlines on a regular basis. There has also been a noticeable increase in the theft of laptops and other mobile devices, with many businesses struggling to obtain insurance for such products. But it’s not only the financial loss associated with the replacement of these devices that needs to be considered — the growth in cybercrime means that such losses can also pose a threat to the systems integrity of organisations.
The need for more comprehensive insurance cover appears to be getting through to local business owners and executives. According to the Financial Services Board’s industry statistics, the commercial and corporate segments of the short-term insurance market have grown at an average of 9% per annum over the past five years, exceeding growth in the personal lines (private households) space. That is despite an economy that remains in the doldrums.
Businesses now account for roughly half of all short-term insurance premiums, with corporate and commercial insurance premiums totalling R92.1-billion in 2016. By far the largest portion of this business is facilitated by intermediaries.
The bottom line is that insurance that covers a firm for every conceivable risk is a “must have” for South Africa’s business executives as they navigate today’s complex risk environment, but it must go hand-in-hand with proper risk mitigation and recovery strategies.