News eDaily23 Aug 2017

SMEs:Still an emerging business for insurers

23 Aug 2017

Against a backdrop of rising nationalism and protectionism, countries have been looking inwards and focusing on their domestic affairs. But staying open and participative in outbound business opportunities abroad and welcoming incoming businesses is the way to success, said Mr Kurt Wee, President of the Association of Small and Medium Enterprises (ASME), delivering the keynote address at the first ever SME Insurance Summit organised by Asia Insurance Review and held in SIngapore.

Mr Wee highlighted three moves SMEs need to make in the region to achieve growth and sustainability over the next decade.

First, they should move into the Malaysian market. Malaysia, a sizeable market, is poised for growth and consumer spending and demand there has been steady and healthy. Businesses which use its halal certification, one of the best in the world, would be in a good position to access the Middle East market. Malaysia is also increasing its connectivity, such as upcoming high speed rail and metro links to Singapore.

Second, SMEs should tap on shared services for cost savings. Co-location and co-sharing administrative teams with other SMEs will substantially reduce overheads. “If five SMEs cluster as a group, they will generate buzz as a co-working environment, with cross pollination of ideas and potential of cross-selling products and services,” said Mr Wee. “It will help you have a hard edge over competitors.

Third, SMEs should tap the frontier markets now. Myanmar and Cambodia, in particular, are ready for market entry with good growth rates and an eager labour force. “If you do not enter soon, you will miss out on a very substantial growth era in these two markets,” he said. “Hack the market like a local. Think local, rough it out and find an angle for profit generation.”

He also highlighted Singapore as a good base for the insurance industry to serve SMEs in the region, and called for the industry to come up with products and solutions that would serve their needs well.

Emerging market credit risks

When it comes to operating in the emerging regional markets like Indonesia, there is always a concern over credit risks and client payment behaviour. For the SME business, and in these less developed markets, insurers face a “difficult journey” in accessing correct data so as to assess risks accurately and cover them more efficiently, said Mr Mahamoud Islam, Senior Asia Economist, Euler Hermes, Hong Kong.

He noted that today, credit insurers are investing in a lot of means to improve risk assessment and cover developing markets, focusing on segments which are easier to support. They have taken a more targeted sectoral approach to focus on stronger, consumer sectors. Another solution is to leverage digital indicators and analytics, so as to track and consider factors such as payment behaviour history in assessing credit risks.

“We are also looking at secondary information, not just balance sheet information. When it comes to SMEs, you need much more. We are trying to develop more relationships with the clients and get more knowledge specific to the buyers and the supply chain,” he said.

Insurers should stop using ‘fear’ tactics

SMEs remain underinsured, or non-insured, and studies have found that majority of SMEs only get coverage after suffering an incident like a data breach, said Mr Karl Hamann, CEO of QBE Insurance (Singapore) Pte Ltd. This is even as their need for risk management is summed up in just one word—survival. Unlike larger companies with more buffers, SMEs can be wiped out if they counter the “right risk at the wrong time” with no adequate protection.

Mr Hamann acknowledged the need for the insurance industry to educate the SMEs on the importance of risk management and the wider variety of insurance products that can be customised to their needs. However, he emphasized that the industry too needs to change its attitude, even as it tries to change SMEs’.

“We’re well known for our fear-based approach to persuasion. We should instead stress on effective risk management to enhance long term stability and competitiveness of SMEs, and position it not as a dreaded cost, but as a good investment,” he said.

Mr Chay Wilkinson, Claims Director, Asia Pacific, Markel suggested an integrated approach including chambers of commerce, industry organisations and in particular, looking at how to use the agency force to build the SME business in Asia—the agency network has been underestimated, he said.

The 1st SME Insurance Summit is organised by Asia Insurance Review and held in Singapore. It ends today.

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