Why SMEs must be appropriately insured for unforeseen events

LETTERS: Small and Medium Enterprises (SMEs) are integral to the growth of the Malaysian economy and its people. Globally, SMEs account for the majority of businesses worldwide and are important contributors to job creation and economic development.

They represent about 90 per cent of businesses and more than 50 per cent of employment worldwide.

As stated in the SME Annual Report released by SME Corp Malaysia, SMEs contributed a whopping RM553.5 billion to the GDP in 2019.

However, the uptake on insurance in SMEs when it comes to natural disasters such as flooding is still a vital concern.

According to data released by AIG Malaysia Insurance Berhad, only 15 per cent of insured policyholders have purchased the flood cover. This means that more that 80 per cent of SMEs have no coverage against flood peril, denoting the lack of comprehension on the urgency of the risk and consequences to the overall running of their business.

Furthermore, even among those that are insured, a majority of them are underinsured. Given the perceivably high-level exposure to multiple risks, insurance is undeniably one of the most crucial risk transfer tools that can make an important contribution to financial management and help reduce the share of losses absorbed by businesses and governments.

The recent catastrophe that hit us should send a clear message to SMEs across the country to be more proactive and to look into insurance coverage as it is the only defence we have to mitigate the financial impact from any unforeseen incidents.

There are two main reasons why the situation has not changed over the years. The first is about affordability. When faced with cash flow constraints, SMEs will delay, reduce and, in some cases, even forgo their insurance coverage.

This is simply because insurance is a non-income generating expense, plus you need to make the full premium payment upfront.

As a result of this, most SMEs would rather assume the risks themselves until tragedy strikes and they end up not only losing everything but may even be laden with debt.

The second reason is because there's a lack of awareness about insurance. SMEs are not aware of the type of coverage that is available to them to protect their business assets.

In such a situation, where do they go to get the right advice and to educate themselves about insurance? Knowing all this, we feel that Cofundr could step in and leverage on its fintech solutions to assist SMEs to solve these problems.

Crowd Sense Sdn Bhd (CSSB), a peer-to-peer (P2P) operator licensed by the Securities Commission Malaysia operating under the Cofundr platform has recently launched a rakyat-centric campaign called KITACOVER. Targeting SMEs, the CSR campaign was fittingly launched as a two-pronged approach.

Firstly, it is to educate and create awareness about the importance of insurance coverage to uninsured SMEs by providing complimentary advisory services to business owners.

The advisory services will be provided by Cofundr's panel of professional insurance intermediaries made up of experienced insurance agents and brokers who are well versed, adept and conversant of the SME segment, including issues relating to natural disasters.

The second approach is for Cofundr to crowd finance the relevant insurance premiums due and pay to the insurer first to make sure that the insurance coverage is in place.

This means that SME business owners have the flexibility of making monthly payments for their premiums instead of having to make the lump sum payment upfront to help ease their cash flow.

And to further aid with affordability, Cofundr will "cover" (fully subsidise) the insurance premium financing costs applicable for any uninsured SMEs that are getting insurance for the first time through the campaign.

At Cofundr, the focus is to promote financial inclusivity for SMEs and the rakyat by enhancing access to fundraising and provide consistent innovative solutions especially at times like this.

Flooding has happened before but still each time SMEs suffered tremendous losses and have no way to be compensated because they are uninsured. Malaysian SMEs may register their interest to receive insurance advisory services at www.kitacover.com