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Insurance: Underrated, overlooked safety net for SMEs

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Considering the unprecedented realities that characterise our contemporary world, recent happenings have shown that the global insurance sector plays a crucial role in managing the business risks of both large corporations and Small and Medium-sized Enterprises (SMEs). This is because research reports across diverse climes have reaffirmed the fact that running any form of business enterprise comes with certain levels of associated risks.

Based on this knowledge strategic insurance-based campaigns were developed for SME owners, including everyday Nigerians, in order to educate them on the benefits of being insured. Megatrends such as disruptive social, technological, economic, environmental, political, and regulatory changes, are subtly reshaping how people respond to the offerings of insurance firms.

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Recent statistics from the National Financial Inclusion Strategy Report reveals that only 1.9 percent of the country’s adult population has one form of insurance policy as of 2018. This further gives credence to a research finding published on Proshare which states that only one in every 200,000 Nigerians has an insurance policy. The larger implication of these startling figures gets to be unveiled by the National Bureau of Statistics (NBS) in a 2019 report which states that the insurance penetration to the country’s Gross Domestic Product (GDP) was at 0.3 percent. These statistical findings invariably imply that there exists a huge growth potential that is yet to be harnessed by SMEs within the Nigerian business landscape. This is despite the rising potential risks the business operations of SMEs could be faced with.

This buttresses the preconceived notion that SMEs operating within the confines of the nation’s economic ecosystem are yet to fully embrace the opportunities the insurance sector offers. This is, perhaps, due to the numerous challenges that have plagued the rapid growth of the insurance industry which include low penetration levels, lack of consumer trust, low implementation of compulsory insurance policies, amongst other issues. These prevailing underlying issues are believed to serve as negative catalysts which cause the value proposition of the insurance industry to be underrated by small-business owners. Hence, it may be right to opine that SMEs tend to overlook the benefits domiciled in insuring their businesses due to diverse reasons which cuts across ignorance to cost. However, corporate findings indicate that the financial implications of operating without an insurance cover at the lower rung of the entrepreneurial ladder appear to differ from the upper rung of the enterprise ladder. This helps to revalidate the long-standing conception that small businesses do not insure their assets due to the perception of cost as opposed to the understanding of a potential loss.

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While this development appears to be slowly paced, it is crucial to note that SMEs are the bedrock of economic growth and development in developed economies. This is because they are regarded as important contributors that improve the employment index of various economies.

Riding on the backdrop of the essential role SMEs play across economies, PricewaterhouseCoopers’s (PwC) survey states that small-business enterprises account for 91 percent of businesses in South Africa, while they contribute 60 percent to the South African employment index and also 52 percent to the South African GDP respectively.

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Narrowing the massive impacts of SMEs to the Nigerian business terrain, the NBS reports that small businesses have contributed 48 percent to the national GDP within the last five years. This means that with the provision of a total of 17.4 million jobs, SMEs provide both 50 percent of industrial jobs and 90 percent of jobs within the manufacturing sector. This corroborates the PwC report which claims that SMEs account for 96 percent of businesses and 84 percent of employment opportunities across the country.

Having tracked the undeniable impacts SMEs contribute to the economic standing of a nation, research has shown that SMEs are plagued with financial challenges which have led to their failures over time.

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As such, SMEs are left with huge commercial debts to grapple with amongst other factors capable of crippling their business operations. These factors include a multiplicity of taxes, high cost of doing business, low threshold for absorbing economic shocks, economic vulnerability, changing tastes and preferences of consumers, infrastructural constraints, inflationary risks, management risks, marketing risks, reputational risks, social unrest, natural disasters, amongst others.

In order to mitigate these potential risks, financial experts have opined that purchasing insurance covers serves as the best way entrepreneurs can be shielded from losses. It is, however, advised that business owners should analyze the business risks specific to the industry they operate in so as to determine the appropriate insurance policy to purchase. This is predicated on the fact that some business risks could be unforeseen, while some are known but also unpredictable.
Oyinlade is the M.D, General Insurance, Old Mutual Nigeria.

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