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As many as 80% of new businesses in South Africa fail within their first five years because many operate in a high-risk environment without sufficient insurance, according to a study by PSG Insure.Fewer than one in five SMEs have formal business insurance, leaving them exposed to potentially catastrophic events such as asset loss and damage, as well as cyber and data risk, the study finds.Given South Africa’s high unemployment rate — currently at 32.7% and even higher at 45.8% for the 15-34 age group — the government has established several programmes to support young entrepreneurs. For example, the National Youth Development Agency, established in 2009, offers grants, mentorship, business training and market access support to youth-owned businesses. According to PSG, an estimated 385,000 new businesses were registered in South Africa last year alone, but many of them have inadequate risk cover.“Many new businesses enter the market exposed to risks they are not yet financially equipped to absorb,” said Ryno de Kock, head of distribution at PSG Insure.“In many cases, failure is not due to a lack of ambition or opportunity but rather an inability to absorb unexpected shocks that disrupt operations and cash flow.”While risk exposure varies by industry, De Kock highlighted five core areas every business should address from the start, including asset loss and damage. Commercial property insurance typically protects against risks such as fire, theft and natural disasters, among the most common causes of loss. Business interruption insurance covers lost revenue and additional expenses while a business recovers from unexpected disruptions, helping to maintain financial stability during periods of downtime. “It’s often not the damage itself, but the inability to trade that puts businesses under pressure,” De Kock said.Other risks are liability, staff-related exposures as well as cyber- and data-related threats.According to PSG, as more businesses adopt digital platforms, they are exposed to data breaches, ransomware attacks and fraud.“Cyber risk is no longer limited to large corporates — small businesses are increasingly being targeted. Cover alone is not enough; businesses also need to take practical steps to mitigate risk, whether that’s investing in security systems, strengthening internal controls or putting contingency plans in place,” De Kock said.
