A wakeup call to expand insurance services to SMEs
A virtual roundtable summary.
As the COVID-19 crisis sheds light on problems with insurance and the healthcare industry, the specific impacts on small and medium enterprises have been notable and troublesome. Today, more than ever, the world has realized the importance of SMEs to local and global economies, and how imperative it is to support and protect them financially. However, up until now, few people have examined the insurance sector as a key player in SME financing.
As part of a weekly webinar series on COVID-19 mitigation efforts, the SME Finance Forum hosted a virtual roundtable on the subject. During the panel, hosted by Matthew Gamser (IFC) and moderated by Susan Holliday (IFC), speaker Charles Ruelle (Euler Hermes), Christina Delos Santos (Insular Life Insurance Co.), T A Ramalingam (Bajaj Allianz) and Richard Thornton (Hokodo) and Henriette Kolb (IFC) shared their knowledge and experiences on how they serve SMEs, including women-led SMES (WSMEs) and the impact of the COVID-19 crisis on their SME offerings.
When it comes to insurance, many SMEs cannot access the group policies and protections offered by insurance companies to large institutions. Insurance distribution for SMEs is one of the most significant issues due to the relatively high costs of serving smaller companies. New technologies were already being used to develop business models for SMEs and COVID-19 has changed the way many companies currently view SMEs. During the discussion, Richard Thornton mentioned many of the challenges these businesses have faced in the past months, including significant payment delays. Government loans have not solved the trade credit problem, as suppliers are reluctant to provide trade credits to small enterprises and some sectors have become almost uninsurable, i.e., restaurants, events industries, and travel, due to their extreme loss of business. However, if these credits can be better distributed to small businesses, trade credit insurance could be a crucial part of protecting SMEs moving forward.
COVID-19 has undeniably shaped insurance companies' current interactions with SMEs. Insurance companies had already begun providing digital products specifically tailored to SMEs, including financial security for travel agents, flexible credit insurance solutions, and real-time invoice-based credit insurance for B2B marketplaces. Charles Ruelle noted that the Euler Hermes Group has been supporting their clients through an extension of insurance policy payments, as well as increasing the standard to delay claim submissions. They have also developed pro-bono advisory initiatives to support small businesses, such as a free risk assessment and a liquidity stimulator that can forecast cash flow situations. In India, in addition to the numerous actions taken by the government to support SMEs, the role of insurance companies in supporting the small businesses has expanded dramatically. As T.A Ramalingam has explained, Bajaj Allianz General Insurance has identified six main areas where insurance can support SMEs: risk management, analytics, loss mitigation, process automation, value-added services, and products. In cases of loss, the Bajaj Allianz ensures that claims are paid on a timely basis. This is essential because the speed of claim settlement is critical to get the business back on track; and so, when claims are settled within 24-48 hours, it helps prevent the company in question from going-out-of-business.
The panel noted that insurance companies, in general, have adapted well and quickly to the SMEs' struggles. Christina Delos Santos highlighted that Insular Life has contributed extensively to the recovery of SMEs by extending grace periods for premiums beyond regulators' demands. They have also powered e-commerce by letting the business choose a product, pay, and issuing the policy online. Embracing digitization has been key. Even for companies that had already begun building online services, the crisis has dramatically accelerated the process. As a result, digitization will help the insurance sector in the long run, with more reliable and accurate data, new online networks, and a robust platform working to bring them closer to their clients and allow them to provide better-tailored services.
This webinar also emphasized that many insurance companies and financial institutions have observed a disproportionately negative impact of COVID-19 on women entrepreneurs and women-led SMEs. It is no secret that the importance of insurance for SMEs and women entrepreneurs has been highly underestimated. Women need much more than capital to survive the crisis and need to have extended credit dedicated to them. To respond to this need, Henriette Kolb refers to a recently published IFC report, which looks at how insurers can meet the localized market needs and risks that women entrepreneurs face. These new approaches include training in safety and financial literacy, among others, as a means of providing well-rounded services to women entrepreneurs.
The role of insurance in micro-finance and SMEs is ever-growing. As for the COVID-19 crisis, it has undoubtedly had tragic effects on businesses, but it also has served as a wakeup call for financial institutions and insurance companies on the need to expand services to SMEs. The pandemic has highlighted how vital and valuable SMEs are for the economy and, thus emphasized the urgent need to broaden insurance policies to small and medium businesses in all sectors.
Author: Celine Bteisch
Contributions: Annalise Pflueger