Ryno de Kock | Head | Distribution | PSG Insure | mail me |
For many South African businesses, spring marks the start of one of the busiest periods of the year. Retailers begin building stock ahead of the festive season. Meanwhile, manufacturers land export orders they’ve been chasing since autumn, and contractors pick up tenders that stalled over the colder months.
While this growth is welcome, it can also create unexpected insurance gaps if risk exposures change faster than policies are updated. Growth is a good problem to have, but it is also one of the times when businesses are most at risk of developing gaps in their insurance cover.
As stock levels, contract values, vehicles, staff and equipment change, the cover that suited the business at the beginning of the year may no longer reflect the status of its current risk exposure. The mismatch is easy to understand. Most commercial policies undergo review once a year, at renewal. However, business operations can change substantially in the months between renewals. Updating insurance is rarely the first thing on a busy owner’s mind.
Growth can expose businesses to insurance gaps
A client wins a big contract or brings in extra stock ahead of Black Friday, and understandably, getting the work done comes first. Updating the insurance is the thing that gets left for later. The trouble is that if something goes wrong in that gap, whether it’s a fire, a break-in or a claim from a new client, a policy that was perfectly adequate in March can come up short in October.
The scale of the gap is worth noting. Industry figures show that South Africa registered more than 385,000 new companies last year. Yet fewer than one in five small businesses carry any form of formal insurance. Around 80% also fail to survive their first five years. Often, the idea itself is not flawed; instead, the business cannot absorb an unexpected shock.
Even businesses with insurance cover are not automatically in the clear. Most commercial policies include what’s known as an “average clause”. If an insurer finds that a business was underinsured when a claim occurred, it reduces the payout in the same proportion.
For example, a retailer carrying R2 million in stock but insured for R1.2 million could have a valid claim cut by 40%, regardless of how the loss happened. This is why sums insured need to keep pace with the changing value of a business’s stock and assets.
Three areas tend to change fastest during a growth spurt. These are also the areas businesses most often leave unreviewed:
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Stock and inventory
Retailers and wholesalers building up for spring and the festive rush should ask their broker about declaration-based cover. This approach adjusts the sum insured to reflect the actual stock on hand each month, rather than relying on a fixed figure that suited June but not November.
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New contracts
Large corporate or public-sector clients often include liability limits, performance guarantees or professional indemnity requirements in their contract terms. Businesses should check these obligations against their existing cover before work starts, rather than waiting until a dispute arises.
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Extra assets and people
Additional vehicles, machinery, equipment or staff brought in to service new business all increase risk exposure. Failing to declare these changes to an insurer can also affect how it assesses a future claim.
Review insurance as the business grows
For business owners preparing for a busier season, I recommend comparing sums insured against current stock and asset values. They should not rely solely on the figures they used at the previous renewal. Business owners should also inform their brokers about new contracts, tenders or major clients before work begins.
In addition, they should confirm that their business interruption cover reflects current turnover rather than the figure they set 12 months ago. They should also consider whether a declaration-based policy would suit their needs if stock levels fluctuate with the seasons.
These steps are particularly important for businesses focused on winning new business during peak trading periods. Securing new contracts and increasing stock can create opportunities for growth. However, owners must ensure their insurance keeps pace with those changes.
In conclusion
A proactive review can help businesses pursue winning new business without overlooking the risks that come with expansion.
Businesses do not need to wait until their next renewal date to review their insurance. A short conversation with a broker now, before the spring rush is in full swing, is generally far less painful than a claims query later. Ultimately, winning new business should go hand in hand with reviewing insurance cover.
By keeping sums insured, liability limits and business interruption protection aligned with current operations, businesses can reduce the risk of unexpected financial setbacks during periods of growth.
