Insurance protection can improve resilience, survival of Kenya’s SMEs

Insurance solution providers and relevant stakeholders should collaborate to innovate effective solutions that are affordable and accessible to ordinary businesses. FILE PHOTO | SHUTTERSTOCK

It is difficult to sustainably run a business in a volatile environment. This is especially the case for small and medium enterprises (SMEs).

These business operations are majorly owned by sole proprietors and may not have adequate reserves to withstand material disruption from economic shocks and other eventualities such as unavailability of the business owner from death or illness.

According to a Kenya National Bureau of Statistics Survey in 2020, about 20 percent of SMEs closed permanently due to economic hardship after the Covid-19 outbreak.

Most of these entities had not taken protection against business interruption from this unforeseen event. They also did not have any other form of risk management to withstand or recover from such an event.

Having an insurance cover would have made these entities more resilient by transferring unpredictable risk to the insurers.

By taking up relevant insurance covers, SMEs in Kenya can improve the resilience and continuity of their business operations as well as contribute to the country’s sustainable economic development

The safety net created by insurance allows business owners to focus on core business with the assurance of continuity no matter the changes in the business environment.

Other benefits of insurance include increased confidence in key stakeholders such as clients, financiers, regulators and business partners.

Insurance policies such as business interruption coverage, for example, provide vital support during times of crisis. In the face of disruptions such as fire, theft, or supply chain issues, insurance can compensate for lost or reduced income, sustain operations and ensure timely recovery.

While insurance is important, some start-ups may not afford it. Insurance is still perceived as a luxury though the majority know it as a necessity.

This is due to the high cost of insurance cover. As a result, the country has recorded low insurance penetration at 2.4 percent, a rate that is low compared to economic growth.

To reduce the protection gap from uninsured economic operations, Kenya started offering microinsurance in early 2000s and approved the microinsurance regulations in 2020.

More than before, insurance is now affordable and accessible to the masses via various distribution channels such as through mobile phones.

Owners of SMEs can now take insurance protection for their own lives and their businesses.

This is against loss of life and reduced or loss of income from such eventualities as ailments, political violence, disruption of supply chain and emerging risks such as cyber-attacks and reputational risks.

Kenya Reinsurance Corporation is keen on significantly contributing to Kenya’s economic resilience by offering sustainable solutions to direct underwriters.

Besides mainstream solutions, the Corporation has introduced micro-insurance in its product offerings. This is through collaboration with one of the leading local insurance firms to offer protection on a short-term basis.

The Corporation is also at the advanced stages of finalizing the uptake of micro-life risks as part of its strategy. This is also being done through partnerships with local life assurance companies, making the product accessible and affordable to local SMEs.

In addition, the Corporation has enhanced its capacity for specialised risks such as cyber risk and reputational risk to tap local business, which has otherwise been ceded out of the country.

These products further enhance the resilience of SMEs and the wider economy.

As the risk profile of SMEs changes, insurance solution providers and relevant stakeholders should collaborate to innovate effective solutions that are affordable and accessible to ordinary businesses.

There is also a need to promote financial literacy, flexibility in pricing of risks and the creation of the right business conditions to increase the uptake of insurance in Kenya.

The writer is the Group Managing Director, Kenya Reinsurance Corporation Limited.