B6
advertising supplement to the Zimbabwe independent JANUARY 29 TOFEBRUARY 4, 2016
INSURANCE
Why insurance is a must for a small business? Sonali Chowdhury
will simply absorb that loss and move on.
The path towards survival and growth of any business is beset with many risks that need to be averted. Insurance helps remove this unpredictability and makes a small to medium enterprises (SME) resilient to potentially crippling surprises. It is especially important for an SME to be insured as a small businesses runs on slim margins and does not have the cushioning provided by liquidity that larger companies enjoy. But insurance is a tricky business and choosing the right policy means first understanding what constitutes ‘business risks’. Next, you need to thoroughly understand the nuances of the various policies on offer.
A growing market
Why should SMEs opt for insurance?
A large part of assets owned by SMEs are financed by banks or micro financiers. These loans are backed by personal collateral given by the promoters.
Insurance is a must for a small business In case of a large loss, the promoters of a small firm could lose not only their business
but their collateral too, if the business is not insured. On the other hand, larger companies
The latent demand for insurance from the SME segment is huge and there is potential to double every year. But this potential will be realised only if the SME segment is given adequate focus and appropriate distribution channels are used. Another reason for the untapped potential is that SMEs have risks they don’t realise are insurable. General insurance penetration in the SME segment is currently low, with coverage largely limited to protection of physical assets and goods in transit. In the next few years, we expect SME clients to increasingly avail products that focus on liability risks such as lawsuits and other legal claims as well as covering their employees. To widen the insurance net, insurers are working with channels like banks that provide finance to the SME sector as well as financial institutions and credit companies who offer credit facilities to this sector. Distribution channels comprising banks, agents and brokers will play an important role in increasing penetration.
What risks demand cover?
Ideally, a business should be protected from all angles – assets, profits and liabilities towards third parties and employees. Some examples are, covering building, plant and machinery, and stock against fire, burglary, money insurance (safe and in transit) and machinery breakdown. Liabilities towards employees can be taken care of by opting for personal accident and workmen compensation covers. Companies that operate in services businesses require employee benefit insurances such as group medical, personal accident or term-life insurances. Manufacturing SMEs are much more focused on property insurance and workman compensation covers. There is also a small segment of SMEs operating in specialised segments such as clinical research, where liability insurances are a priority. “An example of an underutilised standard product is term insurance. This can be sold as employer-employee insurance to SMEs.
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What’s on offer?
Insurance offerings for SMEs are at a nascent stage and most insurers do not differentiate between SMEs and larger companies. There is need for coming up with customised product or Commercial Package Policy, which covers a number of contingencies the SME is prone to under a single policy, which would otherwise be covered under separate policies.
Health cover
With healthcare costs rising at every level, it is important for everyone to have health cover, regardless of the size of the company. Most insurers prefer groups of 50 employees or more and small and medium companies traditionally have either been unable to get coverage because of group restrictions or because such covers are priced too high.
Premiums for SMEs
Premiums for SMEs are almost always higher but there are different factors driving these high prices. For policies such as group medical and group term life, the smaller groups present inherently higher hospitalisation and death risks and so prices are high. In property insurances, the SME has a diminished ability to negotiate discounts on the base rate and ends up paying more. For liability insurance, there is a minimum premium below which any insurance is not viable.
What to watch Out For
Before you opt for a policy, there are several questions you need to answer. “For example, in group medical, the business owner must know if there are waiting periods, whether pre-existing diseases are covered from day one, whether are there restrictions on room rent and so on. In property damage, you need to check that not just fire but also flooding, theft and malicious damage risks are covered. Each policy should have its own finer points and they should be aligned with your business needs. — Money control.com.