Why your SME needs insurance

What you need to know:

It is high time business owners stopped looking at insurance as a tax or an expensive service but as a risk management tool that is a must have.

According to the Uganda Investment Authority, Micro, Small and Medium size Enterprises (MSMEs) make up 90 percent of the private sector in Uganda, account for over 80 percent of manufactured output and employ over 2.5 million people.

Despite this, these MSMEs in Uganda are exposed to even greater risks which threaten their survival given their relatively small financial and business size. Situations like accidents and mistakes can lead to costly lawsuits, while natural and man-made calamities can easily wipe out their hard-earned revenue.

Thus, having the right insurance comes in handy to ensure sustainability of these businesses as it provides financial protection from unfortunate scenarios that could have otherwise cost enterprises thousands, if not millions of shillings, making it difficult for them to recover.

While having the right policies in place helps SMEs get back on their feet faster, majority in Uganda do not have any insurance policy.

According to the 2021 Financial Sector Deepening Uganda and UAP Old Mutual study, only 2 percent of SMEs in Uganda have insurance despite facing firm and non-firm risks that are insurable in nature.

Traders rummage through the burnt area for any  surviving itemsin Kisenyi, Central Division in Kampala. Most SMEs in Uganda do not have any insurance policy. PHOTO/ ISAAC  KASAMANI 

Additionally, the Insurance Regulatory Authority of Uganda (IRA) 2021 survey dubbed, “Uptake of Formal Insurance amongst Small and Medium size Enterprises in Uganda,” also highlighted that SMEs in Uganda are yet to appreciate importance of insurance services. This, the survey noted, exposes them to massive risks.

Policies for SMEs
Uganda’s insurance industry has several insurance products for SME that can help them bounce back on their feet faster in case the unfortunate happens. 

Among them is general liability insurance, which protects businesses against claims of bodily injury or property damage resulting from their business activities.

Small businesses do not receive compensation for this type of coverage, instead the payouts are given to the affected third party. Without general liability insurance, companies will need to pay for the claims out of pocket.

Additionally, SMEs can buy a professional liability insurance policy to protect their businesses from work-related claims. The policy covers legal and settlement costs arising from service-related mistakes and oversights, breach of contract, unfinished work, and budget overruns, among others.

The other important insurance policy for SMEs is product liability insurance, which protects businesses against lawsuits from customers claiming losses or injury from the product. It also covers legal defense costs and compensation if the business is found at fault.

Additionally, SMEs can get theft and all risk insurance which covers things like burglary, fire, machinery breakdown, explosion, business interruption due to fire or breakdown of machinery.

Workers’ compensation is another insurance policy that comes in handy when employee suffer injuries in course of duty. This policy takes care of the cost of medical care and part of the lost income of employees who get sick or injured while performing their jobs. It also protects small businesses from the financial liability of having to pay for expenses stemming from work-related illnesses and injuries out of pocket.

It is high time business owners stopped looking at insurance as a tax or an expensive service but as a risk management tool that is a must have for the success of a business.

Also worth noting is that having the right insurance policy shows your customers and contractors that you take risk management seriously, sending an indication that you will continue to provide the right services no matter what happens.

With insurance, employers are able to retain the workforce in business. For example, employees look for more than just salary, as they search for jobs, they are also looking for the right benefits such as medical insurance.

Businesses without insurance often miss out on attracting and retaining the best employees.

Whereas it is clear that insurance is relevant to SMEs, it is important to know and understand the kind of policy that suits your business needs. This guidance can be provided by a licensed insurer, insurance broker or agent.

Janati Kakongoro is a market development officer at the Insurance Regulatory Authority of Uganda.