Know Your Risks

Know Your Risks

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According to the Tourism Ministry, domestic tourism comprises of 70% of the tourism value in SA. April is particularly a profitable month for businesses in the hospitality and leisure industry as South Africans take advantage of the public, religious and school holidays and flock to various holiday destinations.

Hospitality business owners should use this month to take stock and assess the risks that could disrupt the flow of business and profit over this period, warns Santam, South Africa’s largest commercial insurer.

“A fire, burst geyser, armed robbery, even a flood could devastate a business owner’s ability to conduct business over this potentially profitable period,” says Lourens Joubert, head of commercial underwriting.

Evaluate your policies

The insurer says it is for this reason that a business should use this period to evaluate their insurance policies. “Take this time to verify the terms of your policy, to make sure everything is up to date, that you are not underinsured and that you comply with all the conditions of your insurance policy,” says Joubert.

He says that it is important for business owners to consider the unforeseen.  What happens if a guest of the lodge or guesthouse gets injured or sick on the premises? Would the business owner be liable should a guest’s luggage perish in a fire at the lodge or B&B?

“These are questions that business owners should consider but we always advise them to consider them with the help of an expert insurance broker. A broker would also be an ideal resource to rely on to lodge claims with an insurer after a devastating loss while the business owner gets on with taking care of guests and the continued running of the business,” says Joubert.

Focus on management

He advises business owners to use a simple four step risk management process:

  1. Investigate all potential risks and exposures to the property, premises or other persons (like guests and other visitors). These can be classified broadly into these categories: natural perils (eg, hail, storm, lightning, etc), crime related perils (exposure of the business to burglaries, armed robberies, theft of vehicles or hijacking etc), and lastly accidental damage (damage to computers and other valuables on the premises etc) and, very importantly, liabilities (e.g. for injury to guests or their property).
  2. Then evaluate the risks and exposures in terms of the likelihood of the related event happening and the size of the loss should the event take place, for example: The likelihood of storm damage for guest houses located in the Western Cape during the start of this rainy month are high and the size of the loss would be medium to large ( the actual property could be completely flooded depending on its location); or the likelihood of a fire at a lodge in the cool Drakensberg is low but the size of the loss could be high to extremely high)
  3. Business owners can then control the risk by using the information regarding the likelihood of the event and size of losses. The business owner has to decide whether some of the risks can be eliminated or reduced (e.g. installing an alarm, burglar bars and safety deposits for their guests, reduces the likelihood and size of potential burglaries and aggravated robberies)
  4. Lastly business owners would then need to finance the residual risk which is the risk that is beyond their control and that cannot be eliminated or reduced to an acceptable level. The most common method of financing the residual risk is insurance. This would also be the most viable option for the small business owner of a small guesthouse, lodge or backpackers.
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