Is Your Business Insurance Geared For Extreme Weather Events?

Johannesburg – As South Africa faces the threat of, among other things, adverse weather conditions, experts are urging companies to review their interruption insurance policies.

Doing so will ensure they have adequate coverage in the event of any disruption.

Business interruption insurance is designed to help businesses recover lost income and pay for ongoing expenses, including some additional expenses incurred to try and maintain market share in the event of an unforeseen disruption, such as a natural disaster, fire, or other specified events. 

With extreme weather events increasing in strength and intensity, destroying economies, livelihoods, and lives, businesses need to be prepared for the possibility of extended interruptions to their operations.

“This type of insurance is an essential component and, I would add, the foundation of any comprehensive business insurance plan,” explained Peter Olyott, CEO of Indwe Risk Services (Indwe), a financial services provider.

“It provides financial protection and peace of mind for business owners who may face unforeseen interruptions to their operations, such as those caused by adverse weather conditions.”

With the severe flooding and concomitant landslide and subsidence claims of the past five years, insurance experts warn South Africa is no longer insulated from catastrophic weather. 

Most recently, the devastating floods in KwaZulu-Natal in 2022 resulted in hundreds of lives lost, the destruction of thousands of homes, and the largest claims events for local short-term insurers. 

In 2023, South Africa witnessed the strange phenomenon of Cyclone Freddy that originated off the Western Australian coast and hit Mozambique, some parts of Zimbabwe, and the northeastern parts of South Africa – not once but twice.

With extreme weather conditions now considered the new normal, South Africans could face significant weather over the next few years.

Businesses that fail to adequately prepare for these events risk serious financial consequences, including lost revenue, increased expenses, and reputational damage, as well as other potential complications. 

Business owners without cover or with incorrect cover are significantly at risk. 

“This is why it’s essential that they ensure their assets and the resultant business interruptions are covered for weather-related losses,” Olyott said.

Adverse weather events in the country are also impacting insurance availability and pricing.

“This year we’ll see more insurers considering location-specific risk profiles when it comes to insuring properties,” said Olyott.

“In low-risk areas, insurance will continue without much change but the same cannot be said for those properties found in higher-risk areas. 

“For example, flood risk is being excluded from policies when those properties are in flood-prone areas. 

“While it’s becoming harder to insure these properties, policyholders may alternatively be faced with higher excesses and premiums, as well as being required to implement flood risk mitigation strategies.”  

To ensure they are protected, business owners are advised to review their policies and ensure they still have cover for these events. 

A broker can play an invaluable role by helping clients understand their coverage options and ensuring that businesses are prepared for any disruption, whether it is caused by severe weather or any other unforeseen event. 

Olyott said among all the catastrophe losses South Africa has been exposed to since 2019, the one form of cover which appeared to be the most problematic, in terms of how it was structured, was the business interruption cover.

With the guidance of seasoned advisors, clients would have been advised on business interruption.

They would have had the necessary support to ensure the successful conclusion of their business interruption claims, so that their businesses could continue on the paths they were on prior to the loss.

“The consensus in the scientific community is that extreme weather events are increasing globally, and in specific parts of Southern Africa as well, reminding us just how vulnerable we are to these types of catastrophes,” said Olyott. 

“With a growing risk of property damage, personal injury and financial loss, the key for business owners is preparation. 

“Business interruption insurance provides businesses with insurance cover for weather-related catastrophes, helping business owners take the necessary steps to protect themselves and their assets.”

Indwe is an authorised Financial Services Provider. FSP: 3425