Could a mudslide ruin your business?

Commercial Lines

Could a mudslide ruin your business?

Published: 12 March 2014

Small businesses are vital to South Africa's economy and contribute around 30% to its GDP per annum. However, running a small business is no walk in the park. According to Trade and Industry Minister, Rob Davies, "If seven small businesses start in South Africa, in one year only two of them will continue to be in existence."

This is a sobering statistic considering more and more South Africans are looking to entrepreneurship and starting their own business as they struggle to find employment. However, when it comes to running your own business, we all know there are no shortcuts. Over and above a competitive market, small businesses face many challenges on its road to success.

There are proactive steps that business owners and entrepreneurs can take in order to ensure the longevity of their business. One such action is obtaining sufficient insurance that is suited to your business, and which will provide you with the necessary protection when faced with a setback.

Shehnaz Somers, Head of Commercial Underwriting at Santam, South Africa's leading short-term insurer says, "We have witnessed far too often businesses being crippled and forced to close their doors due to inappropriate cover and not being protected sufficiently when disaster strikes."

Santam received over 200,000 business-related claims over the course of 2013, of which 99% were paid out. Some of these claims included temporary disability, collisions, accidental loss/damage, burst and overflowing pipes, theft and lightening/power surges to name but a few.

Somers says, "Accidents can and do happen, from loss of income or robbery to unexpected environment-related setbacks as the world experiences ever increasingly adverse weather conditions.

Weather-related events have increased in frequency and severity over the past few years. In the past year, Santam again experienced the pressures brought about by difficult weather conditions, principally hail storms in Gauteng, flooding in Limpopo and the Western Cape as well as hail and droughts in the crop business.

In this respect, businesses should make sure they are covered for any eventuality by taking into account their location and specific circumstances.

Says Somers: "In one case last year, the road to a well-known Cape Town-based lodge was blocked by a mudslide due to heavy rainfall. This road is the only route to the lodge but the client had taken out the 'prevention of access' extension on their Business Interruption cover. Santam's Business Interruption cover has an extension which provides cover where infrastructural damage occurs within a 10 kilometre radius which hampers or limits clients from accessing business premises.

"The loss of income as a result of guests not being able to access the lodge, was therefore covered in terms of our Business Interruption cover ," says Somers.

If you are planning to start a new business, Santam provides the following important tips for ensuring your business is insured adequately:

  • The importance of Business Interruption cover


Business Interruption cover is critical for businesses and represents indemnity. Make use of an intermediary to obtain sound advice about insurance for your new business. An intermediary will assist you by ensuring that you have the right cover in place that fits the needs of your business.

"The cover is designed to put your business back into the same position, or as close to the same position, as before the occurrence of a loss," Somers says.

Stephen Hanssen, CEO at Riverstone Insurance Brokers and Executive Consultant at Catalyst Group said, "It is imperative that the intermediary you choose to manage your business insurance is experienced and qualified. They must be able to analyse the entire risk management programme of your business as well as financial statements," says Hanssen.

He adds, "Too often we see business interruption claims reduced or repudiated because the intermediary has incorrectly calculated the appropriate level of cover. Your intermediary should request a copy of your financials, in order to accurately calculate your level of business interruption."

  • The importance of an intermediary


Make use of an intermediary to obtain sound advice about insurance for your new business. An intermediary will assist you by ensuring that you have the right cover in place that fits the needs of your business.

  • The cheapest option is not always the best option


More often than not it pays to opt for an insurer that is reputable and has a good claims track record. Do the necessary homework to determine which insurance company provides the best cover at the most affordable premium.

"When choosing an insurer consider insurance companies that pay their claims quickly, efficiently and that provides 24/7 assistance," says Somers.

  • Be truthful and disclose relevant information


In order to get the best possible premium, you need to be honest and provide your insurer with as much information as possible. Generally, insurers ask for your previous insurance history, which includes a claims history. You run the risk of your claim being repudiated if you have provided incorrect information to your insurer.

  • Type of cover that must be considered and remember to insure for the correct amount


Entrepreneurs must consider legal liability cover as it protects you, should your business be sued following injury to a third party or damage to a third party's property. "These types of losses can be financially devastating to a small business and is becoming increasingly more important, especially with legislation such as the Consumer Protection Act in South Africa, and small businesses being more exposed than ever," says Somers.

Don't underinsure your business. Identify the five most valuable assets in your small business and obtain adequate insurance cover. These assets could range from buildings and stock to the company's motor vehicles.

From there, identify five risks that could potentially have an impact on your business and obtain adequate insurance cover for them. These risks could range from a fire or storm to flooding or even crime.

"Setting up a business can be a costly affair. Safeguarding your company against potential risk is the single most important way to ensure that your income is protected against possible accidents or natural disasters," concludes Somers.