Following the devastation this past week caused by the Western Cape storm – resulting in significant damage to infrastructure and thousands forced from their homes in Cape Town and surrounds – business owners are now counting the cost of interruption to their operations, following the worst natural disaster in the region for 30 years.
In light of this, Annelie Smith, Corporate Executive at RBS (Risk Benefit Solutions Pty Ltd), an authorised financial services provider, encourages local business owners throughout the country to review their insurance and risk management policies, in order to avoid extreme financial losses, as the winter season sets in.
“Even though most business property insurance policies automatically include weather-related losses like flood damage, it is up to the business owner to ensure that potential damages are contained as much as possible. Business owners need to be able to show to their insurers that they did everything in their ability to avoid losses, or they stand the risk of having their claims repudiated,” she says.
“We have already seen major business interruptions as a result of this week’s storm. Two examples are Cavendish Square, which had to close on Wednesday as a result of safety concerns, and Somerset Mall‚ where part of the roof of one of the shops collapsed because of strong winds.
“It is interesting to note that the loss of revenue as a result of Cavendish Square’s closure is not insurable, since the shops did not suffer any direct losses as a result of the storm. Insurers are more likely to pay out for the damage at Somerset Mall, since the storm did measurable physical damage to the building.”
Smith adds that poor risk management policies leave a business vulnerable to major long-term setbacks, or, even worse, insolvency and bankruptcy. “While a business may manage to survive an initial loss, the true risks lie in how long it takes a business to recover to full operation. This is why managing risk and having recovery and backup plans in place is just as important as being able to cover your losses.
Smith points out that the fires currently raging across the Knysna area, may also have huge implications for businesses’ insurance policies. “Many businesses are opening their premises up to relief efforts and as shelter for displaced people. While it is great for businesses to assist during this difficult time, it is vital to understand that your risks change. Relief activities fall outside of the description of the business, which means that insurers could repudiate any claims if it results in damages.
“The correct way to deal with this sort of scenario is to inform your broker that you are participating in relief efforts. The broker will then be able to negotiate with your insurer to temporarily include this new risk in your business insurance policy,” she says.
“It is ultimately the responsibility of the business owner to know which questions to ask and which boxes to tick, to ensure they do not put the business at risk. All policy holders need to be familiar with the exclusions applicable to their policy, as it could be catastrophic if you think that you are insured against a risk that is excluded on your policy.”
She notes that while adverse weather conditions cannot be prevented, the impact it may have on businesses can be minimised if the correct type of policies and procedures are in place. “As weather patterns become more unpredictable in South Africa, the need for businesses to ensure that policies are in place is now more crucial than ever before,” Smith concludes.