Insurance can form a major solution to constraints faced by small businesses across the world, Alice Merry of the International Labour Organisation (ILO) has said.
She said this in a paper titled: “Insurance for Small Businesses” made available to The Nation by ILO Impact Insurance Facility.
She said despite significant efforts by governments across the world to improve infrastructure, competency, among others, the risks that small businesses face, such as weather events, health problems, or theft of their stock, are often left largely unaddressed.
She noted that insurance cannot address all of those risks, but it can address many of them. According to her, a range of solutions will be needed to overcome the constraints faced by small businesses.
She said: “Governments can introduce regulation that is more supportive of small businesses, access to credit can be improved, more reliable electricity and internet access can be installed, and business skills training can improve management practices. Efforts to implement such improvements are underway across the world.”
Speaking on financial protection, she said insurance allows businesses to avoid the financial consequences of certain risks. “Whereas a sudden and unexpected shock can take an uninsured business over the brink, an insured business is able to handle the shock and continue to operate,” she said.
Merry, however, noted that small businesses represent the next target for insurers aiming to reach those who remain underserved in developing countries. She added that many providers would have had success with basic personal products, yet the evolution from success with these products to successful products for small businesses is not automatic.
“Serving small businesses comes with a host of new challenges. These can be better tackled by first taking a close look at the experiences and successes of pioneers in the field.
“During numerous interviews with insurers, challenges in offering insurance to small businesses emerged in three main clusters. And, though most insurers continue to face a range of difficulties, they were also finding ways to overcome them,” she said.
She continued: “Insurance for small businesses poses many issues common to personal microinsurance products such as offering affordable products at sustainable rates for the insurance provider. Many of the facility’s publications cover these topics, and much of the advice in them will be very relevant for insurance for small businesses. This paper, however, focuses on the challenges and solutions which are distinctive to serving the small business market.
“Given their economic importance, support for small businesses is clearly vital. A great deal of good work is already being done, from training courses to increasing access to credit.
“However, if we do not also help small businesses manage the risks they face, an important piece of the puzzle remains missing. Insurance is certainly not a complete solution – as shown at the start of the paper, small businesses face a range of risks; insurance offers a solution to some of them. However, when well integrated with other interventions to boost the capacity of small businesses, improve the environment in which they operate, and reduce the risks they face, better insurance provision could provide a significant boost for small businesses.
“On the other hand, small businesses also represent a promising market for insurers. Business owners have higher awareness of the risks they face and greater familiarity with formal or informal financial services than other parts of the population. Many insurers have shown that it is possible to serve this market at scale, and many of the lessons that they have learnt in doing so can support others hoping to do the same.”
