The PFIP survey was focused on getting insights into insurers’ views and plans for SME insurance and on inclusive insurance (insurance products that are designed to be appropriate, affordable and accessible to low income individuals, communities or businesses). The results of the survey were shared at the 2nd Annual Forum of the Alliance for Financial Inclusion (AFI) and the Pacific Islands Regional Initiative (PIRI) held earlier this month in Port Vila, Vanuatu.
The definition of ‘SME’ or ‘Micro SME’ varies by region, country and the sector of the economy involved. However the vital contribution that these types of businesses make to countries in the Pacific in terms of economies and livelihoods is clearly recognised. In Papua New Guinea for example, SMEs account for at least 200,000 jobs and an estimated 10% of GDP although these figures are likely to be much higher if the informal sector is taken into account.
Various studies have shown that SMEs generally have a high failure rate. Some of the causes of failures include unexpected events such as illness, injury or death of key personnel, or loss or damage to businesses from natural disasters for example.
Insurance for SMEs can provide business owners with protection and an important safety net for when such unexpected events happen, helping business owners to continue operations, giving greater financial stability, and providing job security for employees.
The products that insurers now provide to SMEs are conventional insurance products – providing cover for property and other assets owned and for liability exposures that a business owner may face. Such conventional products often do not meet the needs of smaller scale SMEs for whom the issue of affordability is key. This shows a gap in the market for inclusive insurance products, which have narrower cover, lower limits and reduced costs.
Based on responses from twelve leading insurance providers in the region, the findings show that insurers plan to use a combination of new product launches, strengthened distribution channels and increases sales and marketing activity over the next twelve months as the main strategies for deepening their penetration of the SME sector with conventional products. Two thirds of the respondents view the SME sector as an essential part of their portfolios and have plans to target this sector next year.
The survey suggests that insurers face a number of barriers which must be overcome to increase their coverage of SMEs. Insurers feel that demand for insurance is constrained due to a lack of awareness and understanding by potential insurance buyers, also questions of insurance affordability exist. The poor quality of some SME businesses from an insurance viewpoint also means that insurers are not prepared to provide cover.
PFIP’s Inclusive Insurance Specialist Michael Carr who presented the findings at the PIRI meeting stated, “Although we’ll see more efforts in the conventional insurance area, there is little interest from insurers in supplying inclusive insurance for SMEs. Finding ways to design cost effective propositions and delivery mechanisms that will allow insurers to serve the lower income segments in the SMEs and Micro SMEs space, achieve the necessary scale, and operate commercially sustainable business models remains elusive. Insurers generally do not see inclusive insurance as a priority.”
He added, “the research findings mean that adopting a more customer-focused design approach to insurance product development may help in bridging the gap that exists between insurance offerings and customer requirements. We should also be mindful of the part that government policies, regulations and incentives can play in helping to shape the future direction of market innovation and development”.