A lot more drumming up is needed to stress the importance of adequate insurance coverage among small businesses, which surprisingly do not seem to think it ought to be one of their main priorities.
Many studies conducted worldwide have shown that enterprises, including small and medium entrepreneurs (SMEs), are not aware of the importance of having a comprehensive business protection plan.
For example, a research done by the Information Commissioner's Office in Britain a few years ago revealed that SMEs, for example, were less aware of the principles of the Data Protection Act compared with larger organisations.
SMI Association of Malaysia national president Chua Tiam Wee says that if it is for the protection against property and physical assets, then SMEs are generally well aware of the importance of fire and theft insurance. However, if it is for the “key man” insurance scheme, savings and/or life protection schemes in companies, then this is more alien to SMEs.
“Key man” scheme refers to insurance coverage on companies' key people in the event of their demise or permanent disability.
Chua says many small businesses have neither adequate coverage in basic fire insurance schemes nor carry out yearly reviews to upgrade or adjust needs in accordance with business growth. Instead, they continue to renew past policies that heighten the risk of inadequate coverage when a claim is made.
“Generally, there is a wide range of coverage available, especially among popular schemes, whereas newer schemes such as professional indemnity and product liability insurance are only provided by limited insurance firms locally.
“On the other hand, some insurance firms are also choosy and have even declined to accept coverage for SMEs in sectors such as furniture and also for some vehicle models that are likely to incur high claims,” he says.
On whether the 1Malaysia Micro Protection Plan (1MMPP) launched recently for small businesses and micro enterprises, among others, offered adequate protection for SMEs, Chua says that one has to look at its underwriting rules, coverage, returns, benefits and services rendered to determine the scheme's value.
However, he adds that this scheme can serve as a start to obtain some basic insurance, especially for new SMEs and micro enterprises, while waiting for more comprehensive and adequate coverage.
On the down side, Chua says the Government's various schemes in the past such as the Sihat Malaysia medical plan was not well received and later fizzled out due to the lack of sales continuity and inadequate services provided to clients.
Associated Chinese Chambers of Commerce and Industry Malaysia SMEs deputy chairman Koong Lin Loong says that the monthly payment of as low as RM20 for the scheme is encouraging as more enterprises, especially micro enterprises, subscribe to this plan for their businesses.
However, the terms and conditions of its coverage is only applicable to the common cases dealt by small businesses, he says, adding that the claims upon the unexpected losses will be a challenge towards the success of this plan.
“To secure and prevent SMEs from unexpected losses that may inadvertently affect their cashflows, they need to be educated on the importance of insuring their businesses, as the premium paid on such coverage should be cost-in' to the cost of doing business to protect them from any unforeseen circumstances that may lead to bankruptcy or business failures,” Koong notes.
For example, he says, the premiums for employee benefits and disasters should be affordable to SMEs and micro enterprises.
Insurance plans pertaining to employee-related accidents and medical costs will encourage SMEs to retain their staff while recognising human capital as the most important factor in ensuring the growth of their businesses and promoting better staff performance.
Chua says that to further protect and develop their businesses, SMEs should start with a detailed risk management and business continuity plan to identify their risk transfer plans and introduce “key man” insurance whereby the other partners can buy out the interest of a deceased partner to ensure smooth business transitions.
He adds that there should be a scheme to provide a benefit for directors or key employees to stay on with the company on a long-term basis as well as professional liability scheme for SMEs in the services sector.