Small and Medium Enterprises (SMEs) are a major driver of economic development, employment creation, supply chain stability and poverty alleviation.
According to the World Bank, they represent nine out of ten businesses and create seven out of every ten jobs in the formal sector in developing economies like Kenya.
As economic engines of many countries, the survival of SMEs is of cardinal interest not only to the owners but also other stakeholders like employees, creditors, suppliers, consumers, communities and even governments.
This requires a long-term approach to managing the numerous risks SMEs face. Insurance provides an effective risk-management and financial protection tool. It should therefore be part of the survival tool kit of every small enterprise.
Despite the proven link between insurance and enhanced financial health of businesses, many SMEs are either under-insured or not insured at all against an array of natural and human risks.
This is mainly attributed to lack of awareness of the benefits of insurance, high cost of premiums and a perception that insurance is an unnecessary expense. But COVID-19 has highlighted the need for SMEs to plan for foreseeable and unforeseen risks. In fact, insurance should be part of the survival toolkit of every small business.
Insurers are well-positioned to offer risk management solutions hence the need to seek professional advice from underwriters in identifying the type of insurance product that best suits a particular business. Every growing enterprise has its unique needs and risk profile. The one-size-fits-all approach in traditional insurance simply does not work for small businesses.
For example, SMEs need to invest in employee health. Human capital constitutes a very crucial asset in every enterprise and should be protected. Medical insurance is also vital in attracting and retaining good talent thus improving the overall competitiveness of the business.
That being the case, SMEs still face many challenges in accessing insurance products. According to a report titled Insurance for Inclusive and Sustainable Growth by FSD Africa, some of the SME insurance products in the market hardly cater for their unique needs, in some cases not factoring risks inherent in the value chain.
However, the transformational shift to digital insurance is unlocking opportunities for SME-friendly insurance products. First, digital insurance is easily accessible using simple apps on mobile phones. Simplified onboarding processes save time and money thus making insurance products more attractive and accessible.
Second, digitized insurance operations offer efficiency and convenience. Efficient systems and faster claims settlement are some of the other benefits of digital insurance. Third, digital technology supports innovation to create products that meet the unique needs of SMEs.
Forth, digital platforms are critical in supporting consumer education thus promoting preventive and wellness programs to reduce the disease burden on society. Education and information sharing helps in changing attitudes to health.
We must also dispel the myth that insurance is costly and therefore the preserve of big companies. The risks facing small and large firms are essentially the same only that smaller enterprises are more prone to the catastrophic financial impact of uninsured risks.
Apart from health insurance, other types of insurance that small firms need include product liability insurance covering against financial loss due to damage caused by products sold by the business. Property, fire and burglary insurance protects against loss or damage to premises, goods and equipment.
Professional liability insurance protects service providers like lawyers, accountants and business consultants from claims related to negligence or malpractice. With increased incidence of cybercrime, many companies are now insuring against cyber-risks and other IT-related threats.
The role of insurance in ensuring the long-term survival and sustainability of SMEs therefore cannot be gainsaid.
By Mercy Ndegwa – Chief Operations Officer at AAR Insurance Kenya Limited.
