The size and importance of the small and medium enterprises (SME) segment of consumers cannot be stressed enough. SMEs constitute 99 percent of businesses globally and are responsible for approximately 50 percent of the world’s GDP. In the European Union (EU), for example, 20 million or so SMEs employ about 65 million people, representing almost a third of all jobs within that market.
According to an International Finance Corporation and McKinsey report on SME banking (2015) opportunity in the Middle East and North Africa, there are an estimated 19 million to 23 million micro SME enterprises in the region. In the UAE alone, we have over 200,000 (and growing) SMEs accounting for nearly 86 percent of private-sector employment.
When it comes to establishing businesses, these entrepreneurs are the risk-takers. SMEs are primarily the organizations that breathe life into the market. Despite being the risk takers, these individuals need to protect their interests. Depending on the industry, there are various cost-effective, yet comprehensive packages available.
So why is the SME sector crucial to market growth? In a nutshell, they are the future. We protect their interests through insurance, and so the industry stays healthy with an unyielding growth cycle. As we sustain the risk management process, it helps the industry experience continued growth. As their market grows, their need for insurance also increases. It is essential to tap into new businesses and avoid becoming fixated with the same big companies – there’s no growth on a macro level. Expansion equals growth and penetration.
Right now, regarding expansion, the market as a whole is slow. Although cash flow has been a bit of a sore spot, the market still has immense potential. After all, a slow market is still a growing market. With regards to oil prices, it certainly affects certain industries, such as consultancies and those organizations directly or indirectly related to servicing the projects, businesses or industries that are highly dependent on oil and its associations.
In a recent keynote address, Mohammed Al Shehhi, Undersecretary, UAE Ministry of Economy, stressed the significance of adequate financing for SMEs, noting that SMEs contributed around 40-46 percent of the nominal GDP in Dubai and more than 60 percent of the UAE’s GDP.
At the same time, we all know the oil market is cyclical. Knowing this, individual businesses have saved their cash for that rainy day they know around the corner, while others are aggressive and see this as an opportunity to invest and expand. With expansion, insurance becomes relevant to make sure the proper risk management processes are executed to protect both present and future organizational interests.
The key is differentiating between how to move forward strategically without taking unnecessary risks. It is a fine line between risk and remaining bold enough to stay ahead of the curve. That is where proper counsel can prove extremely beneficial.
Sustainable SME insurance
All insurance is sustainable – it is important to understand how the risk correlates with present and future organizational objectives. It is vital that SMEs choose the right insurance, selecting a package that does not leave them underinsured or overinsured. Once the right package has been determined, the business itself is deemed sustainable, as the risks have been covered, and the management is free to budget for other requirements. As the business grows, so does the budget for insurance, and of course, the management of risk. If the business declines, the astute business owner (stakeholder) needs to know when to communicate and reduce the sum insured, allowing them to put their money in the right places to keep it sustainable. It is all about prioritization.
With SMEs, you name it, and the potential is there. From consultancies, small-scale factories, architects, and food and beverage to hospitality, salons, development and construction, the possibilities for growth are endless. Even when the market is experiencing slow growth rates, the rising energy prices and growing consumer demand creates increasing reasons for SMEs to adopt sustainability strategies.
The main challenge when dealing in SMEs is the education of insurance. This education provides the basis to differentiate between the essentials that must be covered and those items that may prove to be more luxury than necessity (so to speak). This is currently a significant challenge because experience with this segment is small. As a result, penetration can increase through increased education and experience. Here there is room for growth.
Customisation can also prove challenging with SMEs. These businesses come in all shapes and sizes, and there is no “one size fits all” model. To accommodate this segment, we must provide packages that suit their individual needs. No business wants to pay for insurance that they do not need, especially when they are experiencing slow growth.
When it comes to penetrating the SME segment, there are many internal and external changes facing insurers as they strive to gain a competitive advantage. Among the top three are education, experience, and communication.
Education and experience are proving to be a challenge, as both are used to educate the potential client on the benefits of their coverage. Ultimately, insurance is not a luxury in business; it is a necessity. The right comprehensive plan will provide shelter during the potential storm ahead. When a broker knows their packages inside and out, they can explain the benefits of said plan and the risks associated with becoming underinsured. An experienced and knowledgeable broker can also customize these schemes for their client, which is imperative for the SME sector.
Communication is also an increasing challenge in this segment. With recent technological advances, the growing SME insurance buying market wants to make premium payments from their phones. Most insurance companies do not know how they want to handle mobility, and they need to determine their path forward before the client moves onto a broker who can deliver. On the flip side of that, despite technology, brokers need to continue to communicate with their clients. If the business declines, the broker in tandem with the client needs to know when to communicate and reduce the sum insured, allowing them to put their money in the right places to keep it sustainable. Communication is essential.
Is it all about price?
In the beginning, money and price are unquestionably deciding factors for most SMEs. One must remember that a majority of these companies are in their infancy. Compared to the Fortune 500s they are just starting out, and every dollar counts. However, through proper advising, a broker can help them understand that the lowest price is not always in their best interest (as it may not cover their business comprehensively). It is important to stress that while actual benefits may appear the same when comparing the different companies out there, this does not account for the service times of claims and overall experience.
A broker can use their industry knowledge to their advantage, educating their potential client on the benefits of each package. In many SMEs, finance plays a critical role in formulating and implementing a sustainability strategy. The key here is value for money. You are selling an airtight policy that is a wise investment for the future of the client’s business and long-term growth.