Insurance offers survival option as MSMEs battle growing risks

The growing risks facing Micro, Small and Medium-scale Enterprises (MSMEs) is reigniting the need for widespread adoption of insurance as a protection measure against unforeseen losses dealing a blow to the wider economy.

Violent protests, like the #EndSARS protest in October 2020, insecurity in parts of Nigeria that no longer allow farmers into their farms, and the impact of climate change are some of the fresh risks MSMEs increasingly have to grapple with.

But with insurance penetration at less than 1 percent in Nigeria, several MSMEs are often left exposed.

The need for insurance protection, experts say, has become very critical given the role of MSMEs as major actors in the economic development of any nation, particularly in job creation.

According to the most recent survey by SMEDAN, which was done in 2017, there are about 41.5 million SMEs in Nigeria, and they represent businesses with less than N100 million in annual turnovers and have less than 300 employees.

According to experts, not recognising this important sector of the economy by allowing it be exposed to various kinds of avoidable risks is a disservice to the general wellbeing of the economy.

At a stakeholders’ workshop organised by the National Insurance Commission (NAICOM) for sensitisation on insurance for MSMEs in Lagos, the Governor of Lagos State, Babajide Sanwo-Olu, said MSMEs account for nearly 50 percent of the nation’s GDP and contribute 80 percent of the nation’s employment.

Sanwo-Olu, who was represented by the commissioner for finance, Lagos State, Rabiu Olowo, noted that the state government cannot afford to ignore the challenges confronting MSMEs and threatening their survival.

Read Also: Insurance offers survival option as MSMEs battle growing risks

“That is why we describe our MSMEs as very resilient; if you can do business in Nigeria and thrive, there is no where you cannot thrive,” he said.

“We have launched so many initiatives and strategies and are still being implemented towards providing an enabling environment for MSMEs to not only thrive but to succeed,” he said.

According to Sanwo-Olu, securing insurance cover must be encouraged as a guaranteed approach to protect small businesses against unforeseen losses and circumstances that may threaten their operations.

Sanwo-Olu therefore tasked insurers to create special products for MSMEs, which is affordable and free from technicalities for easy assimilation with assurance of settlement of claims.

However, he advised insurance companies, saying, “There should be specially designed products that will meet their category, income, operations and processes such must be affordable and free of technicalities so that it can be easily understood with assurance of settlement of claims.

“I enjoin all MSMEs in Lagos State to embrace insurance as safety net against losses that might be suffered as a result of unforeseen circumstances,” he urged.

Sunday Thomas, commissioner for Insurance, speaking at the event, assured that the commission was committed to its mandate of providing diligent oversight to the insurance sector towards ensuring prompt settlement of genuine claims when insured event occurs.

“I dare say that the MSMEs sector is too important to be neglected as it is key to economic development of the nation, and thus, must be guided and protected against failure.

“The encouraging responses validate that the products meet a critical need, also that the appetite for players in the MSMEs sector to succeed sustainably is high,” he said.

According to Muftau Oyegunle, president, Chartered Insurance Institute of Nigeria, the MSMEs are fundamental at core areas of its operations that its need to expand.

Yetunde Ilori, director-general, Nigerian Insurance Association, urged the MSMEs to link their businesses with insurance protection, saying, “Whatever you cannot afford to lose should be insured.”

Abdulrasheed Babalola, speaking on benefits of Insurance to MSMEs, informed the attendees that insurance protection offered financial protection, boosting production and facilitating access to finance.

Some insurance policies MSMEs can tap

SMEs’ big role in the Nigerian economy is important for economic and social reasons, given the sector’s role in employment. Like any other business, SMEs face a certain amount of risk that undermines their survival and sustainability.

Experts list some of the risks to include:

Hazard: This includes fire and other property damage, windstorm and other natural perils, theft and other crimes, personal injury, business interruption, diseases, etc.

Financial Risks: Price (e.g. asset value, interest rate, foreign exchange, commodity); Liquidity (e.g. cash flow, call risk, opportunity cost), stand the risk of being affected by inflation, purchasing power hedging and other economic factors.

Operational Risks: Business operational factors such as human resources, product development, etc, if not properly managed can be a source of challenge in sustaining the business.

Strategic Risks: Businesses are also exposed to reputational damage such as trademark/brand erosion, fraud, unfavourable publicity, competition; Customer wants demographic and social/cultural trends, technological innovation, capital availability, regulatory, political trends, and so on.

Although pitfalls and challenges cannot be avoided, they can be mitigated with the proper precautions, planning and insurance coverage.

AXA Mansard has developed an insurance solution (Business Insurance Plan) that provides complete protection for business owners, business content and their employees. This cover will not only protect the business against situations of unforeseen circumstances but also provide cover for man-made actions. This will thereby ensure business continuity and longevity.

The Business Insurance Plan (BIP) is a one-stop insurance solution that addresses the business risk exposures of SMEs. It is a ‘pot-pourri’ of several existing AXA Mansard insurance products bundled together. These products include Business Content, Group Personal Accident, SME Life, Health Care Public Liability, and many more.

Linkage Assurance’s ‘SME Comprehensive Insurance Plan’ provides financial protection to small and medium sized businesses against an array of insurable risks in order to ensure their business continuity.

“Linkage Assurance plc’s SME Comprehensive Insurance allows business owners to run their companies without having to worry about unexpected events that can slow them down or bring them to a complete halt, the company notes in a statement.

Whether it is water damage from leaking pipes, money lost in transit theft, or a fire at a warehouse, these are liabilities that cannot always be anticipated. Linkage Assurance provides you the confidence you need to keep moving with the knowledge that your assets are covered from loss and other legal liabilities. The Plan is available with five different optional sections and flexible enough to cater for the insurance needs of SMEs across diverse sectors of the market.”

Leadway Assurance SME plans cover your property, liability or directors risks ensuring your cherished business continues no matter what happens.