Can Insurance Help Rescue My Business?
If your company suffered losses due to the COVID-19 pandemic or violent protests of 2021, you may be in financial distress. Insurance could help rescue your business.
In 2020, businesses sustained massive losses due to business interruption that halted their operations, namely the COVID-19 lockdowns. Resulting shortages in stock and resources led to further business losses. Many types of businesses did not survive, and many others need business rescue to make it through.
This year, many of Durban’s businesses suffered a loss of income due to political riots and looting. With such massive, unprecedented risks to face, businesses are looking to insurance to help rescue their business. The question is, can insurance help?
How Business Rescue Works in South Africa
A typical business rescue plan starts when a company appoints a business rescue practitioner. This individual takes a purposive approach to rescuing the company from financial disaster by putting a business rescue plan in place. In South Africa, the court and CIPC can also appoint a BRP to intervene when a business is sinking.
The BRP has full management control of the business rescue entity in place of its board of directors. The responsibilities, duties and liabilities of a director of the Company are also carried out by the BRP. The BRP may be at risk throughout the business rescue and often purchases an insurance policy to cover themselves from these risks.
Types of Insurance Businesses in Financial Distress Need
When your business needs rescue, there are a few types of insurance cover that can assist you.
Business Rescue Insurance (Indemnity Cover)
First, there is business rescue insurance, which covers the business rescue practitioner. It is a form of professional indemnity insurance meant for BRPs. During business rescue, they are not liable for any omission or act in good faith, but they could be held liable for omissions and acts due to gross negligence. When this happens, business rescue insurance comes into play.
A business rescue can be very unpredictable. For this reason, professional indemnity insurance is important to cover any losses due to gross negligence.
Business Interruption Insurance
Next, business interruption insurance can make a big difference to a company in rescue. You can institute a business insurance claim for losses sustained due to business interruption events that are included in your policy’s coverage. If you have this type of cover, you can check your policy documents to find out which events are and aren’t covered.
It could, for example, be very useful if you have a Santam business insurance policy, since Santam confirmed they would be paying out valid business interruption claims due to the pandemic. Although they originally refused to pay out claims, court intervention has led to valid claims being paid out.
What Does Business Interruption Insurance Cover?
Some insurance companies cover infectious disease interruptions to the insured company, but it is usually specific and not broad. For example, if staff members at your company contract a virus, and the virus spreads at your workplace, necessitating a shutdown, you’re covered. A national lockdown may not be included in the terms of this type of cover.
Sometimes cover includes access restrictions to your premises for reasons other than natural disasters. In such a case, you might be covered if the government orders your business to close. These insurance policy terms may be favourable for the insured business who wants to claim due to lockdown.
Sometimes, relevant business insurance policies offer communicable diseases cover as an optional add-on. The business would pay extra for the coverage but would be able to claim for losses related to infectious disease.
Not all business interruption cover will cover interruptions due to a pandemic or lockdown. It’s important that you check the policy wording carefully to ensure you are covered. If your current business cover doesn’t cover it, you can move to another business insurance provider today. Simply fill in the form at the top of this page, and your ideal insurer will contact you.
Riot Insurance
Your business might already have riot insurance as part of your insurance portfolio. That’s because SASRIA, the only organisation who covers riots, civil unrest, and damage during strikes, works through other insurance companies in the industry in South Africa. You can find out if it is included in your policy by speaking to your insurer today or inspecting the text in your policy documents.
SASRIA pays out valid claims for active perils where they have acknowledged the peril as valid. They only cover events within South Africa. They do not typically cover looting or theft unless it is connected with an insured peril. Anyone from furniture stores to liquor shops who lost stock, buildings, and the ability to operate their business due to violent strikes can claim from their business insurance policies.
Every business owner could get more peace of mind that their business is safe by ensuring their risks are covered with the right insurance products. It’s better to recover financially before sending your company to business rescue because there is no other option. The right insurance can make a huge difference to your financial continuity when disaster strikes.
Disclaimer: The information contained in this article is correct at the time it was published and is meant for informational purposes only. It should not be construed as legal or medical advice.
Sources: shackletonrisk; realbusinessrescue;
