By: Morné Stoltz, Head of Broker Distribution at MiWay Business Insurance
Risk mitigation: How insurance supports small business resilience
It is often said that small businesses are the backbone of the South African economy. It should follow, then, that if the economy is to be safeguarded against the unexpected, it is necessary for individual small business owners to take risk mitigation steps to protect their livelihood and those of their employees.
A closer look by the Small Business Institute reveals the enormous role played by small businesses in South Africa, noting that some 28% of all jobs in the country are created by these businesses. Without this contribution, the economy and the livelihood of millions of people would be imperiled. Yet, at the same time, individual small businesses are often in a precarious state, with even relatively minor ructions holding the potential to close their doors forever.
According to Small Business Institute Chairman, Bernard Swanepoel in a report to be released in 2019, 98.5% of the economy is made up of small businesses[i], “Small businesses continue to be as economically fragile as they were over two decades ago, with some 70% of our emerging small businesses failing within their first two years of operation.”
Risk mitigation is a systematic approach to understanding the risks faced by your organisation, the likelihood of any risk actually happening and the establishment of measures to avoid the risk on the one hand and dealing with the aftermath of an occurrence on the other.
The risks a small business faces are multifaceted. Some are generic and common to all businesses, such as credit risk, environmental risks (thunderstorms and other weather events), crime, on-the-job accidents, legal risk and even ‘key man dependency’ where a single staff member might have specific knowledge without which the company cannot function. Other risks are industry- or even business-specific and can include a wide range of potential scenarios, which can either impact operations severely or close the company.
The first step in a risk mitigation process is documenting and understanding the risks faced. Once the risks are known, measures can be put in place to reduce the possibility of its occurrence and formulate plans to recover from any eventualities.
One of the key tools for risk recovery is insurance. A good insurer will work with you to identify the risks faced by your specific operation and provide cover appropriate to your needs. Things like crime and potential accidents on the job are the obvious ones where insurance should be a ‘non-negotiable’; for example, if you have machinery on which the business depends, or you have vehicles out on the road, being uninsured is potentially reckless. If something serious happens – a crash or a fire in a warehouse – it could spell the end.
Focusing on and mitigating the risks your business faces makes the company stronger. Let’s face it, the unexpected and the unpleasant does happen. Wishing it away is a poor strategy; expecting it and putting in structures to get the best outcomes possible despite even the worst luck means building resilience.
It is not just resilience for your own livelihood. If a fire sweeps through your office late at night and closes your business down, it will spell the end of employment for your staff members, too. With a reliable business insurance policy in place, an unfortunate event of this nature might be a relatively minor setback, rather than a total calamity.