SMEs are usually financed and funded by individual owners or partners from their personal resources. Any unpleasant event involving finance can jeopardise the whole business thus crumbling down the entire business operations. It is therefore essential that SMEs must have good insurance plans and utilize them intelligently to provide security cover and financial help when needed.
Insurance means security, regardless whether the business is small, medium or large. As a matter of fact, insurance for small and medium enterprises is far more important because of limited financial strength and back up of the owner or owners. Every SME has its own nature and set of priorities, companies that have vibrant and forward looking leadership see insurance not as an expense but an investment; or a small fee they pay towards securing their assets and peace of mind for themselves and their employees. However the type of insurance SME should have is an area that needs consideration. Selecting the category of insurance plan depends on the nature of business; trade, manufacturing, warehouse or distribution.
The most common insurance cover purchased by businesses is for factory, warehouses and offices. In case of any accident in a factory or a warehouse, the financial costs are too high even for large scale businesses. For SMEs, these losses, in terms of the structure, machinery, finished stock and raw material can be unbearable thus shutting down the whole business altogether. The significance for good insurance plan and utilizing it to optimum is the second line of defence for SMEs. Since premiums are paid annually they can be easily managed by small to medium business.A good insurance plan usually covers:
- Theft & burglary
- Civil commotion
- Strike and Riots
- Malicious damage
A good insurance plan can never be complete if the assets involved in the business are not properly insured and included in the insurance policy. A business involved in manufacturing need a separate cover for plant and machinery. Similarly, a business that is involved in trade and distribution needs a separate cover for stock kept for onward distribution. This type of business will need an additional coverage for goods in transit particularly if the goods are to be sent far off places; city to city or outside the province. Such businesses are likely to have their own transport vehicles. These vehicles are always at risk while on road for long distances. Needless to say, they need to be insured as well. If the business involves import or export, it will need transit insurance as well.
Businesses that provide warehousing and or cold storage facilities are at tremendous risk of a different nature. Although the stock stored are not theirs but its quantity, safety and security lies with the warehouse. They are the custodians till the goods are transported for onward distribution. The integrity of such a service provider is always at great risk. If a good insurance plan is in place, warehouse can always compensate the original owner in case of any event. In absence of such an insurance cover, the replacement or compensation cost can go in millions; almost impossible to be paid by a SME.
Owing to the nature of business there are SMEs that employ hundreds of labor. Several work on high risk machines exposing their lives and limbs. It is therefore recommended to have Group Life Insurance plan in place. This on one hand provides security and peace of mind to the labour in case of an accident but also saves huge money in medication and hospitalization. Group Life Insurance may also provide wage replacement and medical benefits to workers who suffer injury while working at the factory. Such insurance cover also safeguard’s the owners from legal suits by disgruntled employees injured at the manufacturing unit.