Small and medium-sized enterprises (SMEs) tend to cycle outside the insurance loop for reasons ranging from ignorance to cost.
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Corporate calculations at the lower part of the enterprise ladder appear to be different from calculations nearer the top, resulting in smaller enterprises preferring to take bigger uncovered risk.
Insurance for small firms is like dashing into the rain without an umbrella the consequence could be uncomfortable, but the choice is more the result of the lack of knowledge than the lack of money.
Analysts in growing numbers are beginning to realise that small businesses do not insure their assets not because they do not want to, but because they cannot afford to, or so they think.
The problem with small enterprise insurance appears to be a perception of cost rather than an understanding of loss.
Smaller-sized entrepreneurs tend to cost their goods or services without considering cost of insurance, thereby undervaluing the cost of their goods or services.
The consequence is that in a time of crisis they end up sorry rather than safe.
Data from the Nigeria Bureau of Statistics (NBS) show that local SMEs contributed about 48% of the national GDP in the last five years.
With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector, by number of enterprises.
The NBS report suggests that SMEs support industrialization and employment.
More advanced economies have equally used SMEs to grow industries and promote development.
What is an SME? Running The Numbers
SMEs may look trivial, but they are the bedrock of several stable global economies.
Base research data indicates that the total cost of starting a micro enterprise (including working capital but excluding cost of land) is N5m but not exceeding N50m, with a labour size of 10 workers.
The total cost of starting a small enterprise (including working capital but excluding cost of land) is between N5m and N100m, but not exceeding N200 million, with a labour size of between 11 and 50 workers, while the total cost of starting a medium-sized enterprise (including working capital but excluding cost of land) is between N100m and N500m, with a labour size of between 51 and 200 workers.
Funding SMEs; The Search for Longevity and Stability
SMEs are usually faced with financial dark holes which have persistently led to their failure.
Despite a few federal and state-sponsored funding schemes for smaller businesses, several SMEs have hit the deck as they quickly run out of cash or find themselves buried under a heap of commercial debt.
Funding has been a key operational problem for SMEs as poor management capacity, weak record keeping, lack of operational transparency and no collateral conspire to keep SMEs out of the formal banking sector credit market.
Aside the lack of funds, other challenges that face SMEs include the lack of skilled manpower, multiplicity of taxes, high cost of doing business, and the low threshold for absorbing economic shocks.
…The Other Problems
Additionally, SMEs are confronted with risk-related issues ranging from, changing taste and preferences of consumers, economic vulnerability, infrastructural constraints such as poor power supply, inadequate supply of potable water, poor access roads, high cost of equipment, high rate of domestic inflation, management risk, marketing risk, reputation risk, natural disasters such as earthquakes, fire outbreak, and floods (especially in the farm belts), social unrest, and arson (like during the EndSARS protests).
As an entrepreneur the best way to manage risk associated with a business (asides risks associated with managerial or operational competence) is by getting an insurance cover.
It is important to note that risks might be the reason why a venture capitalist would not invest in a business.
Nevertheless, before getting an insurance cover it would be reasonable to profile the business’s risk to determine the appropriate insurance policy to buy.
Admittedly, some of the risks of businesses are unforeseeable (‘black swans’) while others are known but the timing is unpredictable (‘grey swans’).
In identifying risks, it is important to understand that SMEs are businesses in the private sector, and they cut across all industries so, the nature of risk varies according to the industry.
The responsibility falls on the business owner to identify the risk associated with the industry and purchase insurance that reflect those industry-specific risks.
Some risks are uninsurable, in this situation the entrepreneur would do well to still approach an insurance professional to help in assessing the impact of an unforeseeable loss on the type of business the entrepreneur is engaged in and review the best risk-protection strategy.
In such situations, small businesses could self-insure by saving money for possible future losses.
A variety of insurance schemes or plans are critical to risk protection of SME businesses the kinds of risk protection arrangements include: Liability Insurance, Business Property Insurance, Workers Compensation Insurance, Health Insurance, Life Insurance and so on.
All About the Plans
SMEs require standard fare insurance protection schemes some of which include the following:
Fire and Risk Insurance Plan
Fire and Risk Insurance is a vital insurance plan for SME in Nigeria.
It covers your business against, earthquakes, fire outbreak, tsunami, flood, social unrest, intentionally inflicted damages that may occur in the line of your business.
An example was what happened during the end SARS protest that affected business premises and markets.
This insurance plan will protect your business against loss or damage because of rain, flood, and storm.
Under this plan, your insurer will pay back all your losses, giving you the capital, you need to resuscitate your SME.