Township businesses are an integral part of South Africa’s economy. However, a lack of access to insurance distribution channels and inadequate knowledge about suitable insurance options have left many township businesses without protection.
This is according to Khensane Mangwane, Claims Specialist at SHA Risk Specialists, who says the stark reality is that commercial insurance coverage levels in townships are significantly lower than in other regions, leaving township businesses vulnerable to the many risks they face daily. To bridge this gap, insurers need to engage more directly with these communities and offer tailored solutions that address their specific challenges and risk exposures.
Understanding the needs of township businesses
The needs of businesses in township economies differ substantially from those in more formal sectors. “One of the key issues is a lack of business and insurance knowledge. Many business owners in township areas do not fully comprehend the risks their businesses face or the financial implications of being uninsured or underinsured. Without this understanding, insurance is often viewed as an unnecessary cost,” he says
Mangwane says inadequate infrastructure in many townships compounds the problem, as businesses often operate without access to reliable electricity, internet, or other essential services. “This limited infrastructure not only hinders business growth but also makes it difficult for owners to budget for insurance premiums.”
He highlights the importance of effective risk management is critical for these businesses, especially considering the ever-present security risks. The right insurance policy can protect them from the financial impact of theft, asset loss, or liability claims, helping them to resume operations swiftly after an incident. The rise of criminal syndicates, high crime rates, and protection rackets have forced some businesses to close their doors. Those that remain open face higher insurance premiums due to their high-risk environment. Adequate security measures are essential to keep these businesses safe, yet they often lack the resources to invest in such solutions.
Addressing misconceptions in underwriting
According to Mangwane, one of the fundamental challenges for the insurance industry is that many underwriting models do not account for the unique characteristics of businesses operating in townships. Instead, insurers often apply generalised assumptions that label these businesses as high risk without thoroughly assessing the specific circumstances on the ground.
“A more personalised risk and needs analysis is required in these cases. Insurers must spend time understanding the operations, structures, and environments of township businesses before determining risk profiles and appropriate coverage. Such assessments can reveal that many businesses while operating in high-risk areas, do not pose the same level of risk as others. This would allow for more accurate pricing and coverage tailored to the real risks these businesses face, he adds.”
Improving accessibility and affordability
Increasing access to insurance for township businesses requires simplifying distribution channels, says Mangwane. “Digital models that allow business owners to access and sign up for policies via internet-enabled devices would provide a much-needed solution. Furthermore, community programmes and educational initiatives are essential to raise awareness and help business owners understand the importance of insurance. By tailoring products to the size and needs of these businesses, insurers can offer affordable cover that reflects their true risk exposure.”
One of the primary barriers to implementing insurance in township economies is the informal nature of many businesses. Without formal registration, bank accounts, or proper record-keeping, many township businesses are considered ‘uninsurable’.
Opportunities for growth and stability
Despite these challenges, the township economy represents a significant opportunity for insurers and the broader economy. Effective risk management and insurance solutions can help township businesses grow sustainably, ensuring they are resilient in the face of economic instability. With the right cover, businesses can continue contributing to job creation and economic growth while ensuring their operations are safeguarded.
To facilitate this, insurers need to develop offerings that cater to the specific needs and structures of businesses operating in these informal economies. A shisanyama, for example, would need fire and liability cover due to the nature of its operations. Educational initiatives that demonstrate the value of such cover would go a long way in helping owners appreciate the protection that insurance can offer.
Mangwane says three decades into democracy, South Africa’s township economy stands as a vital engine for economic growth, yet it remains largely overlooked by the insurance industry.
“Now is the moment for insurers to reimagine their offerings, refine their distribution models, and engage more meaningfully with these businesses. By doing so, they can tap into a growing market and help secure the future of the township economy,” she says.
PERSONAL FINANCE