Cape Town – When most business owners think about insurance for their ventures, they automatically think about cover for their physical assets, such as buildings, stock, machinery or vehicles. The cost of replacing physical property is easily determinable through a valuation process. However, when it comes to estimating the financial fallout of an unexpected incident, the process is far more complex. This includes forecasting the cost of a third-party liability claim, which could involve many moving parts.
In the highly competitive and often chaotic commercial landscape, South African businesses may deem themselves to be far removed from catastrophic events involving third parties. Thabo Twalo, Chief Underwriting Officer at Santam Broker Solutions (SBS) advises, that when it comes to these kinds of risks, “no business, regardless of the size or nature of their dealings should ever consider themselves immune.”
What a third-party liability claims involves
A third-party liability claim arises when someone (a third party) who has suffered injury, loss, or damage due to the actions or negligence of a business, initiates a claim for which the Insured becomes legally liable to pay. This claim could be made by anyone who enters a business premises or uses a product or service, including customers, suppliers or the general public.
Third-party liability is often associated with ‘slips and trips’, where a customer slips on a wet floor in a retail store and injures themselves due to inadequate signage, for example. Other examples include a member of the public suffering a head injury when passing a construction site or being cut by a product that wasn’t manufactured according to the appropriate health and safety regulations. Or if a client falls victim to a cyber-attack and is impacted financially.
Understanding the extent of liability risk
Liability claims have been instituted against businesses with even the best intentions and exceptional quality control in their manufacturing and other processes. This is particularly true in cases where businesses rely on employees and subcontractors to carry out their work. Regardless of how thorough their processes are or how well they are supervised, accidents and mistakes can still happen.
“Liability risks are significant. The hard costs involved, as well as the extensive reputational damage could bring a business to its knees. Therefore, when it comes to taking out the right amount of cover for these types of risks, business owners need to think above and beyond the cost of covering the third party’s immediate medical expenses.
Consider a scenario in which the third party becomes permanently disabled as a result of an unforeseen accident and claims for lifelong medical assistance as well as loss of income for the foreseeable future. Claims could also involve lengthy court proceedings, so businesses need to account for legal fees, settlement costs, compensation for pain and suffering, rehabilitation expenses, and even future adjustments to their operations to prevent similar incidents,” Twalo adds.
Liability cover as an essential safeguard
Liability insurance exists to make a difficult situation more bearable for the insured party and should be one of the foremost considerations that any business owner makes when putting financial protection in place. It should also be tailored depending on the business’s sector, as liability risks will differ. The Public Liability section can usually be added to an existing business policy, allowing clients to combine it into one comprehensive business insurance policy.
For this reason – perhaps in terms of liability cover more than other forms of insurance – working with an adviser that has sector-specific experience as well as a thorough overview of the risk landscape is hugely beneficial.
The value of good advice
When helping clients choose liability cover and limits, advisers take many different variables into account. This includes evaluating the nature of the business, its size, potential risks associated with its operations, and the likelihood of claims being made. Also consider that the limit of indemnity must cater for every aspect of the Insured’s business.
They also consider factors such as the business’s interaction with the public, the types of services or products it offers, and the financial impact a claim could have. These considerations ensure that the cover is comprehensive enough to protect the business from all unforeseen events and liabilities.
An adviser will also be able to provide business owners with a broad view of what is available and what to consider, such as cover for cyber liabilities, product recall and legal liability arising from professional advice.
“Business owners have enough to deal with in the day-to-day running of their businesses. Being covered for third-party liabilities is one way of securing peace of mind to be able to focus on growing your venture, tackling the tasks that come with being an entrepreneur, managing your team and doing what you do best,” concludes Twalo.
Source-insurancebiz.co.za