By: Thabo Twalo, Chief Underwriting Office at Santam Broker Solutions

In a commercial environment where the vast majority of small businesses fail within three years or less, putting a fledgling enterprise through its paces is a complex challenge. From ensuring tax compliance to maintaining efficient operations, there are many boxes to tick; and in the first few years, very little room for error. However, despite these high stakes, many small business owners still don’t realise what a significant difference having insurance can make.

The devastation left in the wake of the spate of riots and looting that took place in 2021 is a prime example of the disastrous impact that a single, unexpected incident can have on a small business.

Those riots are estimated to have cost almost R50 billion, with small businesses bearing the brunt. According to research conducted by NPC BeyondCOVID, over 60% of the small businesses that were impacted at the time did not have insurance. For many of those SMEs, the cost was simply too great to sustain.

As Thabo Twalo, Chief Underwriting Office at Santam Broker Solutions explains, “despite the staggering statistics we saw in 2021, unfortunately not much has changed between then and now. Too many SMEs do not have insurance or are underinsured – according to FinScope MSME Survey South Africa 2024, only 18% of SMMEs have business insurance.

The solution lies in raising awareness and ensuring that entrepreneurs remain informed about their specific vulnerabilities, what kind of cover provides the necessary protection and how to budget adequately to keep that safety net in place. As insurers, we have an all-important role in offering SMEs the most updated information as well as ongoing support.”

Elaborating on this point, Twalo says that there are 3 main reasons insurance is crucial to running a resilient small business:

Cover in times of crises

An immediate benefit of having insurance as a small business relates to having enough financial protection to remain in operation when the unexpected occurs. For example, experts predict that the severity and frequency of weather-related disasters will increase as climate change worsens.

The 2022 floods in KwaZulu-Natal – now regarded as the worst flood disaster on the continent, negatively affected many small businesses. The costs involved go far beyond the potential damage to aspects such as an SME’s business premises. Things like equipment damage, the cost of halted operations and the destruction of stock can add up quickly.

Unlike large businesses, many SMEs simply do not have the cash reserves needed to recover these losses without any significant interruption. Insurance is one of the most effective ways to fill this financial gap.

One step closer to supplier success

A proven approach that SMMEs can expand, and scale is by becoming a supplier. In highly competitive environments, where reputation matters just as much as product or service quality, having insurance can help small businesses build trust and credibility.

“When a small business is insured, it sends a clear message: we are prepared, professional, and accountable. This builds confidence among stakeholders who may be entrusting you with valuable assets, projects, or data.

This is especially important in high-risk or highly regulated industries. For example, in construction, contractors are often required to show proof of public liability, contractor’s all-risk, or professional indemnity insurance before being allowed to bid on government or corporate projects. This is where having insurance can help you chart a smoother path to building long-lasting professional relationships,” says Twalo.

A major plus for potential funders

Gaining access to funding is one of the biggest hurdles entrepreneurs need to overcome on the journey to realising their dreams. Having insurance as part of a clear and comprehensive risk management strategy could make the process of obtaining funding quicker and easier.

Most major funders in South Africa require applicants to submit a detailed business plan that includes thorough financial projections. These projections must account for all operational expenses, explicitly mentioning insurance costs and other applicable risk management measures. An SME that shows proactivity in this way may be one step closer to getting the funds they need.

“Insurance isn’t just about having financial protection and peace of mind. It’s also about opening doors both in the short- and long-term,” Twalo concludes.