Business after junk: insurance has never been more important

Written by Morne Stoltz • Online since 5.09.2017 • Filed under Insurance • From Issue 6 - September 2017 - February 2018 page(s) 50-51
Business after junk: insurance has never been more important

The downgrade of South Africa’s bonds to junk status heralds tough times for business, with SMEs likely to be hard hit. The pressure to cut costs should not tempt owners to skimp on insurance – being properly covered is critical to long-term survival.

According to the president of the AHI, Bernard Swanepoel, South Africa’s debt downgrade to junk status is likely to usher in economic tough times. He argues that downward pressure on the rand and more expensive debt means less money for infrastructure projects, which will reduce government procurement from SMEs. In addition, less spending on service delivery could mean SMEs will have to make contingency plans for power and water interruptions, among others. In general, depressed economic activity puts pressure on all business, SMEs included.

And, with shallower pockets than corporates, SMEs inevitably look for ways to cut overheads. For many, insurance is already seen as a grudge purchase and it is often a seemingly obvious target for cost-cutting.

This would be a mistake. Risk is always present and wise business people take proactive steps to ensure that they understand their business risks and mitigate them. Insurance remains the best and cheapest way for small companies to mitigate risk and ensure that it doesn’t result in business failure.

With fewer resources behind it, one could argue that an 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 both 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. Having the right insurance cover in place spells the difference between survival and bankruptcy for many SMEs when disaster strikes. Furthermore, the right insurance partner can play a 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.

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.

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 makes their chances of surviving and prospering much greater, while the lack of insurance could give fate the upper hand.


MiWay Insurance Limited (‘MiWay’) is a direct short-term insurer and a financial services company, offering customers a range of short-term insurance products including motor, household, homeowners, business insurance as well as liability cover. MiWay is wholly owned by Santam, a blue-chip JSE-listed company. MiWay is an Authorised Financial Services Provider (Licence no: 33970)

Issue 6 - September 2017 - February 2018

Issue 6 - September 2017 - February 2018

This article was featured on page 50-51 of SABI Magazine Issue 6 - September 2017 - February 2018 .

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