Availability of credit and access to funding for Small and Medium Scale Enterprises (SMEs) are strong catalysts and veritable opportunities for economic growth, which supports the growth of insurance industry.
Most developed economies, which have witnessed the growth of insurance industry has been noticed to have a strong credit system that allow citizens to acquire assets and pay later, which of course requires insurance to become successful.
Insurance is major component of access to credit, such that people or business are only granted credit or funding when there is insurance guarantee, that is, in the event of default, insurance comes to their rescue.
In this vein, finance institutions like micro finance banks are easily given out monies to SMSEs, while car companies, equipment firms, electronics and home appliances establishments are also at peace, giving out credit which will be repaid over a period of time.
In Nigeria, access to credit was up after the banking industry consolidation in 2005, but has gradually disappeared as the economic situations worsened, indicated by the collapse of the middle class, increasing loss of job, closure of factories and industries, among others.
Ebelechukwu, Nwachukwu, managing director/CEO, NSIA Insurance Limited said credit is the engine of insurance business growth. Until we begin to have access to credit as citizens, growth of insurance will take longer time to come.
Jerome Gotcsche, a retail marketing expert said the SME industry in Nigerian is hugely untapped and its growth requires the support of insurance.
He noted that players in the insurance industry should deploy resources, form partnerships with loan companies to tap from opportunities in SME sector, particularly across the markets.
He believes that these sectors are the growth base of the economy, and needs financing to grow to be able to enhance its contribution to the GDP.
According to him, a location of daily expanding growing businesses, small business owners, industries, business districts, real estates and viable land mass for investors present a huge opportunity for growth of insurance business.
“the opportunities for insurance engagement is huge when you consider the number of SMEs, the volume of money exchanging hands in the industry particularly among the market women and men whose activities need a lot of insurance protection for risk management. In a recently published journal of Microinsurance Network, experts stated that 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 State of Microinsurance in 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.
Modestus Anaesoronye
