Running a business of any size involves managing various responsibilities. Of all the operational, legal and compliance responsibilities that have to be monitored and carried out, one of the more overlooked is insurance.
According to the FinScope MSME South African Survey (2024), the micro, small, and medium enterprise sector (MSME) employs approximately 13,4 million people; however, an alarming reality threatens their very survival: only 18% of small businesses have insurance coverage.
Operating without insurance is more prevalent in informal sectors. FinScope reported in 2020 that 67% of township businesses lacked insurance, and its 2024 survey shows the problem persists, with many MSMEs still operating informally.
These stats highlight that most small businesses leave themselves exposed to potential financial losses. In today’s article, we look at what SMEs risk without insurance, how they can mitigate risk, and the various insurance products they need to consider.
The Reality and Risk of Operating Uninsured
Here are some of the realities that can affect a business that is operating uninsured.
Changing Market and Social Conditions
There are two examples of events that happened in South Africa that had a social and economic impact: the July 2021 riots and the 2022 KZN floods. The July 2022 riots in KwaZulu-Natal and Gauteng had a significant impact on the economy. The total economic cost reached nearly R50 billion, with small businesses bearing the heaviest burden.
Research by BeyondCOVID highlighted that 62% of affected small businesses had no insurance coverage. The social/human cost was just as significant, with at least 40 000 South African businesses looted, burnt, or vandalised during widespread rioting that broke out after the riots. For many small business owners, this represented the loss of their life’s work.
The April 2022 floods in KZN showcased how natural disasters can impact unprepared businesses. The economic cost reached R54 billion, yet only 18% of losses were covered by insurance, according to the Santam Insurance Barometer Report of 2022-23. Without business insurance, most SMEs had to rely on government support measures or face permanent closure.
Increasing Cybersecurity Threat
Cybercrimes don’t only affect large businesses; SMEs are at a much greater risk due to a lack of preparedness and inadequate cybersecurity protection. Business Partners’ 2025 research estimates the average cost of a data breach at R53,1 million, up roughly 10% year-on-year. For many SMEs, a single incident of that magnitude can be terminal.
The threat volume is bleak. ESET’s 2025 report shows South Africa ranks first in Africa for ransomware and infostealer activity, accounting for more than 40% of incidents on the continent. Recent breaches at the National Health Laboratory Service and the South African Weather Service make it clear that no sector is immune.
Without cyber insurance and basic cybersecurity training, small businesses remain highly unprotected and vulnerable to phishing attacks, a leading entry point for cyber actors.
Professional Indemnity and Liability Risks
SMEs often overlook the risks of professional indemnity and public liability exposures that can bankrupt a small business overnight. Professional indemnity insurance has become increasingly critical as claims against professionals surge. The Legal Practitioners’ Indemnity Insurance Fund’s official statistics reveal millions in outstanding reserves, with average claims reaching R3,7 million.
Any SME that is customer-facing needs public liability insurance because it covers third-party injury or property damage, with various industry benchmark reports showing claims ranging from R100 000 to over R10 million per incident.
Common Insurance Mistakes and How to Avoid Them
The above are just examples of the conditions that can change overnight and negatively affect a small business that is not covered by insurance. Now, let’s look at the common insurance mistakes small businesses make and how to mitigate them.
1. Ignoring the Replacement Value of Assets
Many policyholders insure their assets for the market value, not the replacement value. The difference is huge: market value factors in depreciation and location, while replacement value reflects what it would cost to rebuild or replace the item today.
If your insured value is not updated annually, you risk being underinsured, meaning your payout won’t fully cover your loss.
How can you avoid that? Ensure that you review all insured amounts yearly and ask your insurance broker to confirm that your policy is based on replacement cost, not market value.
2. Choosing the Cheapest Premium
Comprehensive insurance can be costly, so most SMEs opt for cheaper premiums, but cheaper doesn’t mean better. Ultra-low premiums often come with:
- Higher excess payments
- Limitation on cover types
- Exclusions for theft, weather damage or certain vehicle uses
How can you avoid that? Always compare coverage details, not just pricing. A slightly higher premium may include broader protection, which can save you lots of money in the long run.
3. Failing to Review Policies After Life Changes
Coverage needs shift constantly. Buying a home, starting a business, or even installing a new security system can affect your coverage. The risk people take by not reviewing policies is that outdated coverage can no longer match their realities.
How to avoid it? To avoid mismatched coverage, review your policies at least once a year or after a major life event. Also, keep your broker informed about major purchases or lifestyle changes.
4. Not Understanding Policy Exclusions
Every insurance policy has terms and conditions – some call it the fine print – which can have major consequences. Exclusions define what your insurer won’t cover, and failing to read them is a common mistake.
Typical exclusions include:
- Gradual wear and tear, e.g. rust and corrosion
- Damage due to poor maintenance
- Unauthorised vehicle use
- Natural disasters in high-risk areas (without additional cover)
How can you avoid it? Always request a summary of key exclusions from your insurance broker and ask any questions before signing, not during a claim.
5. Forgetting About Excess Fees
An excess fee is the amount you pay when submitting a claim, and too many policyholders forget to check it. Low premiums often come with a higher excess fee. For example, you might save R100 monthly, only to pay R10 000 after an accident.
How can you avoid it? You must balance your premium savings with realistic excess amounts. Also, choose an excess fee that fits your budget and risk tolerance.
These are just some of the common mistakes small businesses make when getting insurance. To avoid being left unprotected or underinsured, review all your policies to check that they align with your current needs.
