July 12, 2024

Cancelling business insurance could cost you more in the long run

3 min read

South African businesses are facing a number of headwinds from several fronts. The turbulence of the global and local economic climate – coupled with the most recent interest rate increases, rising inflation and the high cost of fuel and electricity – are among the biggest obstacles to business continuity and growth.

To alleviate some of these mounting pressures, businesses may be considering cancelling their insurance policies, but the risk implications of this may end up costing more in the long run.

This is the opinion of Jason Mellow, head of Business Insurance at MiWay, who urges businesses to consider “the long-term impact of the short-term decision to forgo cover for unexpected events. The impact that loadshedding has had on local small businesses is just one key example of the direct impact that socio-economic conditions can have on a key metric such as profitability. Insurance should therefore be seen not as an expense but more of a preventative measure, which is vital in these uncertain times.”

External risks on the rise

Touching on the main reasons that cancelling business insurance could lead to a substantial financial burden, Mellow points to new and emerging risks such as indicators that the commercial risk landscape is expanding. An example can be seen in the severe flooding throughout parts of KwaZulu-Natal in 2022, which caused large-scale damage and destruction to business property. This event has been attributed to the tangible impact of climate change – a phenomenon that is set to worsen over the coming years. In light of climate change-related risks, which were not a pressing issue up until fairly recently, businesses are cautioned against taking the very real possibilities of these external threats for granted.

The threat from within

Risks that arise from inside businesses are also a factor to consider. These include the liability involved with errors, omissions or incidences of stock loss due to employee theft. As Mellow explains: “We often look to external sources as the greatest threats to business, but some of the most devastating hazards lie within our own workforces and systems. Putting a stop to your business’s insurance cover will not put an end to the risks your business is exposed to. Instead, it will serve to increase your risk exposure – and in small businesses that cannot afford to absorb great losses, a single incident could shut down an entire operation.”

Higher premiums on future policies

Cancelling a business insurance policy could also lead to increased costs when the business reapplies for cover. Any interruption in cover could signal a significant change to the company’s risk profile, leading underwriters to see the business as a higher risk. This may, in turn, increase the business’s insurance premiums when the policy is reinstated.

The loss of vital business services

Insurers like MiWay offer a suite of value-added services to their commercial insurance policies. These include a replacement vehicle in the event that a business loses or suffers damage to a company vehicle. Through services like MiBusinessAssist, businesses also benefit from support services in the fields of marketing, financial and employee management.

Incurring the cost of these services, as Mellow suggests, may not be financially viable for businesses in the long term and can add up to substantial amounts. Businesses are therefore urged to consider the cost of cancelling a policy not only in terms of increased risk exposure but in terms of the loss of valuable support services.

As an alternative, businesses could consider contacting their insurer to realign the cost of their insurance policies with what they can afford. Insurers like MiWay tailor their products and services to the business models and unique needs of their individual clients. Businesses, therefore, enjoy a large degree of flexibility, which they can lean on in periods of economic volatility.

Encouraging businesses to develop close relationships with their insurers and to adjust their coverage where needed instead of cancelling their policies, Mellow concludes: “We are aware of the mounting pressures that face local small businesses and are poised to assist by providing a service offering that ensures businesses only pay for what they need. Our policies are informed by our comprehensive understanding of risk and what businesses need to ensure their longevity.”

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