Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.
In another few days the infomercials will begin in the electronic media and the adverts will appear in the print press, all echoing the same message – that of being prepared. Barbadian households and businesses alike will be reminded of the season we all would wish to forget, the Atlantic Hurricane season. From June 1, 2023, the awareness of a possible disaster and the vulnerability of our region will be appreciated by all, as the Caribbean confronts the dreaded possibility of a direct impact of a hurricane or storm.
As reported in this space in an earlier article, Small Island Developing States (SIDS) suffer average yearly losses from storm damage equivalent to 17 per cent of their Gross Domestic Product (GDP).
From a risk management perspective, the hurricane season presents emerging risk which is best addressed through resilience building and risk mitigation measures, due to the uncertainty inherent in this phenomenon.
The small business owner, therefore, has to appreciate this level of uncertainty and employ measures to mitigate the risk from destroying their enterprises and/or providing the means to recover in a timely manner. One proven way is the acquisition of insurance. Procuring adequate insurance coverage allows the firm to pass on the risk to the insurance provider thus guaranteeing a level of protection for the business should a disaster strike.
Though not promoting any one service provider, Business Basics this week, is encouraging micro, small and medium enterprises (MSMEs) to invest in adequate insurance coverage as a risk management solution at this critical time.
It is well known that small business owners do not have excess capital or reserves stacked away, whether in credit unions or other financial institutions, to cover the cost of losses resulting from catastrophic events. Investments made in the business over many years can be dissipated in a blink of an eye.
In modern societies, insurance companies abound, offering a range of product offerings, designed to take on the risks associated with catastrophic events. Through the payment of a simple monthly premium, policyholders are assured that should an insured peril occur, which resulted in a financial loss, the insurance company would indemnify and compensate the policyholder. Insurance buying is simple and extremely cost effective for owners of small businesses seeking to transfer the risk of loss to an insurance company.
The impact of a hurricane on Barbados can have severe financial consequences on small firms. One may recall the effect of Hurricane Elsa in July 2021, though classified by the Barbados Meteorological Office as a CAT 1 hurricane, the damage was widespread, estimated at some $10 million in structural damages. The financial cost to businesses remains unknown. Based on these preliminary estimates, one could imagine the impact of a CAT 3 or 4 hurricane. Hurricane Maria in Dominica in 2017 serves as a reminder to all. This hurricane caused damage equivalent to 280 per cent of that country’s GDP.
Small business owners therefore, ought to insure their properties (buildings) if they have ownership of the same and contents within the building (e.g. stock, furniture, fittings, fixtures and supplies) against the possibility of being damaged by the impact of a hurricane. What is extremely beneficial to owners seeking coverage is the fact that insurance policies issued in Barbados do not limit coverage to hurricanes only, but coverage is extended for losses or damage as a result of flooding, fire, earthquakes, volcanic eruption, burglary, malicious damage, fallen trees, explosion, as well as other insured perils.
It is recognised that even if small firms secure coverage against catastrophic events, they sometimes do not opt to purchase business interruption (loss of profits) coverage; nor do they include provision for loss of rental income or loss of rental income due to be paid. Under the terms and conditions of an insurance policy, the policyholder is indemnified after suffering a loss. It is therefore clear that if a building and/or contents are damaged, and the business cannot operate for a period of time because the building is uninhabitable, the owner may lose rental income or still have to pay rental income. The intention of an insurance policy is to put the policyholder back in a position prior to the occurrence of a loss.
Another important aspect of the insurance product to appreciate is the existence of deductibles within insurance policies. Regrettably, it is a known fact that people do not read their insurance policies and unfortunately many insurance executives do not advise policyholders of the various applicable deductibles. To clarify, the deductible is the amount which the policyholder is personally responsible for. The applicable deductible for losses as a result of a catastrophic event is 2 per cent of the Sum Insured.
For example: Building $100,000.00 and Contents $50,000.00 = Total Sum Insured $150,000.00. In this example, the deductible would be $3,000.00.
The greater the Sum Insured, the greater would be the deductible and therefore, it may be advisable for policyholders to set aside the amount of the deductible in a credit union or other financial institution, in order for the amount to be readily accessible in the event of a claim for loss or damage.
Insurance coverage can help the business to be prepared in the event of a natural disaster. Consequently, MSMEs should contemplate procuring adequate coverage this hurricane season to mitigate the risk of disruption to lives and livelihoods. Business owners are exhorted to take wisdom from the old adage “it’s better to be safe than sorry”.
The Small Business Association of Barbados (SBA) is the island’s non-profit representative body for micro, small and medium enterprises (MSMEs). Connect with the SBA: https://www.sba.bb/sba/