Business owners who are under pressure due to the tough economic environment should avoid cutting back or cancelling their short-term insurance as they could be left in a far worse predicament.
Malesela Maupa, Head of Product and Insurer Relationships at FNB Insurance Brokers said that having insurance coverage is critical when a business is going through turbulent times. During this period, the business faces a multitude of risks that could lead to liability issues by failing to provide a service or meet the needs of its customers.
He pointed out that factors that businesses should consider before taking any drastic measures:
For some businesses, having adequate short-term insurance cover is a contractual requirement which needs to be met, always.
For example, when contractors are awarded a contract to construct a building, some contracts require that the contractor has short-term insurance cover in place for the duration of the contract.
Alternatively, when purchasing a franchise, the bank and franchisor may require that you have adequate cover in place as part of the agreement. The same principle applies when a bank finances the purchase of a commercial property.
Transport and logistics businesses are also required to have some form of short-term insurance cover to ensure that their clients’ goods are protected.
Financial impact of cutting cover
Before you amend your short-term insurance policy, it is essential to assess the risk impact of the cover you are cutting back on – how would it impact business operations and continuity of the business following an insured incident?
Cancelling your policy
Cancelling your short-term insurance policy might seem like a quick solution in terms of reducing costs, but may have catastrophic implications for your business. A business that is not insured faces a multitude of risks which could result in the business being liquidated and the owners being held personally liable for damages, in the worst-case scenario.
Premium reducing approaches
The most efficient way of reducing your short-term insurance premiums is to reduce the risks that the business is exposed to. Avoid taking cheap insurance cover that offers very little protection for your business.
There are several approaches to consider depending on the type of business and its operations. These strategies range from addressing the business’ risk exposures to transferring the risks to other stakeholders or third parties.
The first step is to review your short-term insurance cover to determine if there aren’t any items or equipment, which no longer exist (or update the values the items are insured for) which are covered under the policy. Secondly, you can use an effective risk mitigation approach to reduce your premiums, such as installing an alarm system, burglar bars, tracker on vehicles or a modern sprinkler system etc.
"Before making any amendments to your short-term insurance policy or risk improvements to your business and its premises, it is advisable to consult your broker or insurer to ensure that you avoid making mistakes that will cost you more in the long term," concluded Malesela.