Inclusive insurance for micro, small and medium enterprises

Micro, small and medium enterprises (MSMEs) are often overlooked - too small for large banks and insurers to bother with, but too big for microfinance institutions who tend to be more concerned with covering individuals and families. Yet MSMEs account for more than half of all employment worldwide, and the jobs and wealth they generate are vital for achieving the Sustainable Development Goals - especially SDG 8: decent work and economic growth. Insurance is increasingly recognised as a valuable risk management tool for MSMEs in developing countries, which are vulnerable to risks and have a high incidence of business failure.

However, treating MSMEs as if they have the same insurance needs can undermine the potential value of insurance to contribute to their sustainability and growth. As Cenfri’s Jeremy Gray and David Saunders write in the forthcoming State of Microinsurance 2018, “MSMEs are not a homogenous group and their insurance needs differ significantly. They range, for example, from a sole-proprietor car mechanic to a tyre manufacturer with up to 249 employees.” Micro-enterprises - those with fewer than nine employees - tend to be better served by inclusive insurance products because “The line between proprietor and business is likely to be blurred, with the result that micro-businesses often have insurance needs similar to individuals.” On the other hand, SMEs - with between 10 and 250 staff - are poorly served in comparison, with only five out of the top 10 insurers worldwide offering products specifically aimed at this size of business.

The relatively poor uptake of insurance among SMEs - especially in emerging markets - is worrying because employment and economic growth relies on their ability to thrive - and as a business grows, the financial losses from an adverse event are likely to exceed what it can cover with informal risk mitigation. Formal insurance can help a business to become more resilient and as a result, encourage investment. There is a clear business case for insurance providers to target SMEs yet they seem reluctant to do so. Perceived barriers include the need to tailor products to individual business needs and the relatively small risk pool compared to that of individuals and micro-businesses.

If inclusive insurance is to live up to its name, SMEs must not be left behind as insurers seek to roll out products in emerging markets. Better use of data and digital ecosystems, coupled with new business models and improved risk management, could all help SMEs become more resilient and grow.

To discuss how insurance can support the development of micro, small and medium businesses, some of the leading experts in the field will come together at a special session during the upcoming 14th International Microinsurance Conference in Lusaka, Zambia, co-organised by the MiN, with Munich Re Foundation and the Microinsurance Technical Advisory Group of Zambia (TAG). Hosted by GIZ and moderated by Cenfri’s Jeremy Gray, the session will explore ways that insurers, InsurTech, distributors, governments, donors and development agencies can help develop a better insurance market for MSMEs.

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