Insurance for MSMEs

Micro, small, and medium-sized enterprises (MSMEs) are exposed to a wide range of risks. They often struggle more than larger businesses to cope with risks. Insurance can help MSMEs better manage risks, giving them access a greater variety of risk management tools and give them the confidence of taking more productive investment decisions.

Micro, small and medium-sized enterprises (MSMEs) are vital to economic development and responsible for more than two thirds of all jobs worldwide (ILO, 2019). But despite their large share in global employment, MSMEs face challenges when it comes to working conditions, productivity and informality. They are exposed to a range of risks and they struggle more than larger businesses to cope with these risks. This is partly a matter of resources – MSMEs have fewer resources to cope with the risks – but it is also made worse by the environment they operate in and a shortage of skills and tools to manage risks. Climate change, causing floods, droughts and other crises to become more frequent and intense, is a growing concern for these businesses.

Insurance is an important tool to help MSMEs manage some business risks, alongside other risk management strategies. It provides small businesses with financial protection and helps boost productivity and increase access to finance. Yet, MSMEs worldwide are generally underinsured or have no insurance at all. This problem is particularly acute in emerging economies.

From the insurers’ perspective, insurance for MSMEs is a promising market. Nonetheless, it has three significant challenges. The first is product design. Many insurers do not sufficiently understand small businesses and their risks and they do not offer them suitable and valuable products. Secondly, once a product is designed, insurers face challenges in building the right distribution strategy to get it into the hands of clients. Since small businesses are a diverse and loosely organized group, it can be difficult to find aggregators to reach these customers. Finally, insurers face poor understanding and trust of insurance among small businesses.

Working on both the supply and demand sides, the ILO supports insurers in designing valuable insurance solutions to MSMEs, while raising awareness among businesses about the importance of getting insured.