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The insurance imperative

Research by the National Small Business Chamber shows that 68% of South African SMMEs are not insured. For SMMEs to succeed this has to change.

Article by AIG South Africa

Small, medium and micro businesses (SMME) have long been identified as key drivers of economic growth, and a viable way of creating the thousands of jobs we need to reverse the current astronomical unemployment rate. Research by the Small Business Institute shows that 95.8% of the economy is made up of small and medium-sized enterprises. However, they only create 28% of jobs, a far cry from the target of 90% by 2030 set in the National Development Plan.

Even more worryingly, 70% of emerging small businesses fail within the first two years, according to the 2018 National Small Business Survey, conducted on behalf of the National Small Business Council.[1]

The picture, then is one of unrealised potential; in fact, potential that must be realised to create a truly inclusive and sustainable economy, says Shaun Scandling, Head of SME, Middle East and Africa, AIG.

“The big question is to understand what is holding SMMEs back, and provide products and services that they need. I would argue that one of the big areas that needs attention is SMME-focused insurance. The business environment is becoming steadily more risky and hard to read: it’s a textbook case for insurance and yet 68% of SMMEs do not have short-term insurance at all. This has to change for the SMME segment to succeed,” he says.

“Insurance is always necessary but one could argue it is most necessary at these early stages because the business is at its most vulnerable and has the least resources to recover from any setback,” he points out. “The owner has typically put his or her assets down as collateral, and thus accessing further capital to get the business back up and running after a disaster is usually impossible, and the business suffers.”

Understanding exposure

SMME owners often mention the important role that partnerships with the right people have played in their success. Business partners are obviously critical but one should not ignore the role that a good financial advisor frequently plays in a business’s trajectory from start-up to stable company with an expanding client base and staff complement.

Insurance brokers can play this kind of role because, Mr Scandling argues, most SMMEs do not understand their own risk exposure. For example, the classic small business selling a product frequently doesn’t even recognise the need for product-liability insurance, and yet it could save the business.

Another big area is cyber risk. For SMMEs, direct marketing using digital channels is by far the most affordable way to find and interact with customers, but this does create vulnerabilities needing protection. Hackers and system downtime are obvious risks, but a business is not always aware of possible regulatory risk. As the Protection of Personal Information Act comes into force, delinquent companies face the possibility of huge fines as well as the loss of brand reputation.

“Then there’s the loss of property and/ or equipment,” he adds. “Downtime is always a problem for a company, but for a small one it can be fatal. Business interruption insurance will cover the increased cost of working from different premises as well as the shortfall in gross profit – literally a lifeline.”

Typically, SMME owners are pressed for time, and also often lack the expertise to scope their risks – which includes their insurance needs – properly. Mr Scandling believes that brokers can play an important role here by providing the expert help SMMEs need to develop an insurance strategy that is appropriate to their current status, and will provide them with the security they need to be sustainable.

“Smart SMMEs will put some effort into finding a broker who will help them to put the right insurance in place, and will nurture their growth,” he concludes. “Many of today’s corporate giants started life as an SMME, and you will often find that they have well established long term relationships with their brokers.”

AIG South Africa is a proud Partner of the NSBC.

[1] “The alarming truth about the number of small businesses in South Africa”, BusinessTech (25 July 2018), available at

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