Having the right insurance cover has never been more important, since the recent downgrade of South Africa’s bonds to junk status signals tough times ahead, says Morné Stoltz, Head of Business Insurance at MiWay

The recent downgrade of South Africa’s debt to junk status is likely to usher in tough economic times, says the President of the AHI, Bernard Swanepoel. He argues that downward pressure on the rand and more expensive debt will mean less money for infrastructure projects, which will in turn reduce government procurement from SMEs.

In addition, less spending on service delivery could mean SMEs will have to look at making contingency plans for power and water interruptions, among other things.

In general, depressed economic activity will put pressure on all business, SMEs included. With shallower pockets than corporates, SMEs will inevitably look for ways to cut overheads. For many, insurance is already seen as a grudge purchase and so it is often a seemingly obvious target for cost-cutting.

This would be a mistake. Risk is always present, and the wise businessperson takes proactive steps to ensure that he or she understands the risks the business faces, and mitigates them. Insurance remains the best and cheapest way for a small company to mitigate risk and ensure that the materialisation of one of those risks does not result in business failure.

With fewer resources behind it, one could argue that a SME is more dependent on insurance than a large corporation. For example, a customer injury at its business premises, or a defective product that causes injury, could each result in substantial claims for damage. The purchase of new equipment for example, could make a business a desirable target for thieves. These are all likely scenarios.

One needs to add that the likelihood of many risks materialising – such as theft – actually increases when times are hard. Having the right sort of insurance cover in place would obviously mean the difference between survival and bankruptcy for many a SME when disasters such as these strike.

Furthermore, the right insurance partner can play a much more strategic role than simply providing insurance cover. A reputable insurer recognises that it has a vested interest in helping its clients’ businesses to succeed. For example, MiWay has business insurance advisors who will consult at a client’s premises to help assess what risks they face and thus what their insurance needs are.

This kind of professional risk management is invaluable, particularly when it comes to complex, poorly understood risks, such as supply chain risk. Every business is part of a supply chain, something that creates a complex risk landscape.

SMEs may find it hard to come to grips with the impact of a supplier’s inability to supply a product or service on time – or indeed a disaster – making it impossible for the SME itself to honour its contractual obligations.

In addition, MiWay also offers a value-added service, MiBusiness Assist that offers other types of assistance – HR, tax, BEE accreditation, legal assistance and so on. Some other insurers will have similar value-adds.

There’s no doubt that trading conditions will be tough for the foreseeable future. SME owners are resourceful and tough – they have to be. Using insurance wisely to understand and mitigate risk will make their chances of surviving and prospering much greater, while the lack of insurance could give fate the upper hand.