Protecting SMEs against risk

SMEs play a dynamic role, contributing to almost half of Singapore's GDP, but one in seven small firms remain uninsured.

SMALL and medium-sized enterprises (SMEs) make up 99 per cent of all businesses in Singapore, employ 70 per cent of the country's total workforce and contribute to nearly half of its Gross Domestic Product. These numbers highlight the integral role that SMEs combine to play in Singapore's economy, but also emphasise the need for them to remain robust and insulated against risk.

Yet, despite their fundamental importance to the national business context, it seems that many SMEs here remain dangerously underprepared for dealing with common business problems - risks which, if continuously ignored or underestimated, threaten their very survival.

These issues are made more problematic by increasing macroeconomic uncertainty, as Chinese growth slows and oil prices bottom out while, closer to home, local firms operate against manpower-lean policies and an ageing workforce.

However, even in the face of this volatility, research conducted recently by QBE Singapore showed that as many as one in seven smaller Singaporean SMEs (that is, firms with between five and 20 staff or revenue of less than S$1 million) still do not have any business insurance. When extrapolated across the wider SME landscape of Singapore, this represents around 21,000 firms putting themselves, and ultimately the ongoing strength of the economy, in unnecessary jeopardy.

This alarming statistic is compounded by worrying perceptions around insurance. The research found that enterprises view insurance products beyond the minimum, mandatory coverage as mere commodities, rather than necessities for their business. As many as 53 per cent of respondents argued that insurance is low on their priority list, while 56 per cent agreed that minimum cover for their business was sufficient and that additional insurance was not essential.

We know, however, that this is not the case. Taking out a minor, additional policy to further protect your business can reap huge dividends and ensure longer-term survival.

For example, a client of QBE, paying an almost token premium of S$1,240 per month, saw its storage facility burned down in a Joo Koon factory building. The fire destroyed all stock, furniture, fixtures, office equipment, office contents, factory improvements and machinery. For being prepared and protected against this risk, the company was paid out a claim of S$20.6 million.

Our research also uncovered the very specific concerns that most worry SMEs. Chief among them were talent-related issues in the form of staff acquisition, training and retention - an important consideration, given that SMEs employ over two-thirds of working Singaporeans.

This is understandable given how employee turnover typically leads to increased training expenses, recruitment costs and the loss of company-specific knowledge. But despite exhibiting a high level of concern, SMEs continue to operate uninsured against basic talent-related issues. We learnt that almost half of companies surveyed feel their business needs more protection for loss of key staff than it currently holds.

The gravity of staff acquisition, training and retention issues is accentuated by the government's efforts to address these problems through aggressive funding and support initiatives. One such example is the recent initiative by SPRING Singapore to pledge S$45 million in funding towards a mentorship programme aimed at helping SMEs improve staff training and career progression pathways. As an insurer, we support this kind of initiative and seek to take on a mentor-type role when supporting our customers, not only offering policies that protect them but also working collaboratively to guide companies through the process of dealing with an accident or issue.

This all brings up a key question: why are firms still underinsured, particularly in relation to talent issues? Part of the reason may be the prevailing view that cost is the most important factor in purchasing insurance, which ignores the importance of plans that fit the individual needs of businesses. SMEs exhibit a lack of in-depth research into insurance policies, with most admitting that the policies provided by different insurers look the same to them. These statistics are significant because they highlight the lack of awareness into the different insurance products made available by different providers on the market. Our advice in response to this is simple but crucial. First off, all SMEs need to undertake a proper assessment of their businesses, making their brokers or agents and even their insurers run in their interest. From there, they must consider seriously whether adequate protection is in place - and whether "adequate" protection alone is really enough to ensure long-term survival.

Clearly, then, there is an increasing need for protection - specifically, customised protection that supports the specific needs of SMEs in Singapore. As such, business insurance can be the glue that helps hold the economy together, ensuring that Singapore's SME machine continues to stay strong against the tides of change. In the face of such tides, companies simply cannot afford to be left stranded and alone. Or worse: shipwrecked.

The writer is chief executive officer of QBE Singapore. He is a member of the Management Committee of the General Insurance Association (GIA) of Singapore and a Convenor of GIA's Talent Development Committee