MSME sector pushing uptake in commercial insurance in UAE

Micro, small and medium enterprises should invest in business insurance to mitigate risks and ensure sustainability

Around 50 per cent of the micro, small and medium enterprises operating in the UAE have some kind of insurance, while a significant half shy away from making this investment citing high costs of insurance or seeing it as an optional expense, said Mustafa O Vazayil, Managing Director, Gargash Insurance, in an interview with Khaleej Times.

"There are still a lot of micro, small, and medium businesses that are not fully aware of the necessity of insurance. There is a perception that insurance is an expensive affair, and it can be avoided. But that is not true. It is important for small businesses to know that the insurance costs are much lower than the risk that they take." Micro, small, and medium enterprises are the backbone of economies globally.

According to the UAE Ministry of Economy, MSMEs constitute more than 94 per cent of the total number of companies operating in the emirates and provide jobs to more than 86 per cent of the private sector's workforce. In Dubai, SMEs make up nearly 95 per cent of all companies, employing 42 per cent of the workforce and contributing around 40 per cent to Dubai's GDP. Of these, about 50 per cent MSMEs operating in the UAE have some sort of business insurance cover. If we look at Dubai alone, more than 70 per cent MS-MEs have some insurance, noted Vazayil, adding there is a need to raise awareness and ensure that the whole sector is protected against untoward experiences.

One of the biggest misconceptions among small businesses is that insurance is expensive and companies can do without investing in one. "Basically, it is a lack of awareness. In relation to the as-set value, businesses do not even pay one percent of the value of their assets on insurance cover. Businesses pay .1 or .15 per cent of their asset value as insurance. Insurance premium in relation to the potential loss is significantly small. Besides, the UAE is a very competitive market and products here are fairly priced. Insurance for MSMEs is expensive in Europe and the US."

Talking about some of the must-have insurance policies for MS-MEs, Vazayil suggests covering all sorts of assets. "Businesses should look at shielding their physical as-sets. They should purchase insurance against theft of cash, infidelity of employees, who can misappropriate either cash or stock. Companies should look for public liability insurance cover, policies ensuring workmen compensation, and medical insurance. These are some of the basic policies that any MSME should consider.”

Besides, there are covers that protect businesses against any sort of interruption. "A fire accident, for instance, can interrupt business activity during the period of repair, which could be as few as days or as high as months. However, the business would continue to incur expenses, even though there is no revenue being generated. In such a case, a business interruption policy ensures staff salaries are paid on time, and standing expenses, if any, are also taken care of."

Individually driven businesses should also con-sider 'keyman insurance' which insures the position of an employee that is invaluable to the unhindered running of the company. "This insurance is important in case of individual-driven businesses. If there is a partner that is incapacitated or is unable to contribute because of an unforeseen event, insurance covers for the business volume and profitability affected. This is a very important insurance cover."

MSMEs based in the freezones are expected to have at least liability insurance cover, while MSME businesses based in the mainland have no such compulsion. "Today, most of the MSMEs are categorised and standardised packaged insurance covers are available for them. There are covers that are tailored to cover all the risk exposures a business could incur. A lot of players, including us, provide such policies through our online as well as offline channels," noted Vazayil.

Gargash Insurance was formed in 1994 and in the last three decades has emerged as one of the leading insurance brokers in the UAE.