When last did you do a business risk assessment?

With loadshedding now a fixed, yet highly unpredictable, feature of the South African business landscape, it was only a matter of time before reinsurers raised the alarm on covering businesses under these unprecedented conditions.

In early February, a number of local insurance companies announced that they would no longer cover damages related to electricity grid failure, on the advice of their reinsurers. In effect, the failure of Eskom's grid and any resulting damages are now considered uninsurable events.

Naturally this has had a significant impact on businesses' risk and as a result, insurance covers, necessitating policy reviews.

As a business, it's important to regularly review your risk (which can quickly change, just look at the Covid pandemic and resulting lockdowns) and then ensure that you are adequately covered.

Business risk management undertaken in this way builds confidence in your internal and external stakeholders, as it enables you to successfully identify and mitigate risks to your business before they become detrimental.

Generally speaking there are five types of risks for which you must be covered and regularly re-evaluate your protection:

1.    Operational risk

These can be internal risks, such as human error by an employee, or external risks, such as a natural disaster or pandemic. Either way, these are the risks that interrupt business, and mitigation measures would include business continuity plans.

2.    Fraud and security risk

This risk relates specifically to cyberattacks, intellectual property theft, data breaches and identity theft. These are all increasing as e-commerce and online interactions continue to grow. Interestingly, while IT security does play a role in mitigating this risk, it is widely perceived to be human-based, stemming from inadequate employee screening processes.

3.    Industry compliance risk

Every industry has its own specific regulations governing business conduct. In addition, in South Africa we have to meet the obligations of the POPI Act and the Consumer Protection Act. Regular risk reviews ensure that your business remains compliant, especially when branching out into new markets.

4.    Reputational risk

These are the risks related to negative consumer or stakeholder perception, brought about by poor customer support experiences, negative publicity, or faulty products or services that have garnered negative reviews in the public domain. Reputational risks can affect your relationships with customers and partners, and also your bottom line.

5.    Financial or economic risk

Financial risks are caused by various factors, among others, market movements, foreign currency exchange rates and commodity price fluctuations. Mitigating strategies here would involve limiting the amount of loans taken, obtaining insurance, and diversifying income streams to ensure a consistent cash flow.

If your business risks have changed recently, or you have not reviewed them in a while, it is time for a risk assessment.

Our risk management and insurance consulting team comprises some of the most experienced risk management and insurance professionals in South Africa, and can advise you on ways to improve your risk management and insurance arrangements.