Unlike large businesses, many SMEs lack the cash reserves needed to recover from losses without facing major disruptions.
Building a business from the ground up is never an easy task, and running a small business is a complex challenge. Many small and medium enterprises (SMEs) fail within the first three years.
Entrepreneurs must ensure tax compliance and maintain efficient operations while also effectively managing their cash flow. There are many boxes to tick, and very little room for error when starting a business.
Therefore, having insurance can save entrepreneurs from many headaches should something go wrong.
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Insurance for SMEs
Thabo Twalo, chief underwriting officer at Santam Broker Solutions, said that not much has changed since 2021, and now, only 18% of small businesses have 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.”
Cover in times of crisis
He added that an immediate benefit of having insurance as a small business is having sufficient 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.”
Twalo made reference to the 2022 floods in KwaZulu-Natal, which had a negative impact on 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 lack the cash reserves needed to recover from such losses without facing major disruptions.
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One step closer to supplier success
Twalo added that reputation is just as important as product or service quality, and having insurance can help small businesses establish trust and credibility, especially if the business wants to expand to become a supplier.
“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, contractors’ 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.”
A major plus for potential funders
He added that 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 demonstrates proactivity in this way may be one step closer to securing the funds it needs.”
5 types of cover all businesses need
Former Discovery Insure CEO Anton Ossip said that the right insurance is just as important for protecting your business from the dynamic risks of today. Ossip notes how businesses need insurance for:
- Tangible or intangible business assets;
- Theft, including theft by employees;
- Loss of profits or revenues following interruption of or interference with the business;
- Legal liabilities to compensate third parties for losses suffered owing to actions or negligence of the business. This includes liabilities arising from social media interactions.
- Losses to the business and liability to third parties following a cyber-attack on business computers.
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