In November 2015, Cenfri staff members attended the 11th International Microinsurance Conference hosted by the Munich Re Foundation and the Microinsurance Network in Casablanca, Morocco. At the conference, Jeremy Gray presented evidence on the risk experience of SMMEs and their coping mechanisms from six MAP pilot countries. The presentation “Understanding the opportunity for MSME insurance” formed part of a panel discussion entitled “Servicing SMEs”.
MSMEs constitute an important driver of both production and employment in developing countries. By their very nature they face a myriad of different risks. Whilst many of these may be uninsurable, effective risk mitigation is critical to ensure that small businesses are not toppled by every major risk. For the insurance sector, MSMEs constitute a major potential market in developing countries.
Drawing on data and insights from the Making Access Possible (MAP) financial inclusion diagnostics conducted in Thailand, Myanmar, Swaziland, Mozambique, Lesotho and Malawi, Cenfri looked at what do the MSMEs in these countries actually look like, what are the primary risks they face, how are they currently coping with these risks, why are they not using insurance and what are the implications for providers and policymakers. The presentation is based on the MAP Global Insight Series note Decoding the Customer: First impressions from a more granular approach to client typology.
Most MSMEs completely blur personal and business expenses and the primary risks they face are personal in nature. The implication for insurance providers is that the primary insurance needs for MSMEs across developing countries is in fact for insurance that mitigates their personal risks. However, insurance is the least used coping mechanism to deal with identified risks.
The two primary reasons identified by MSMEs for not using insurance are a lack of awareness and a lack of value. However, informal risk pooling is common amongst communities. In fact, for MSMEs with small surplus revenues, the decision to save with an informal savings group, for example, may be a far more effective means of mitigating their risks. Investing their surplus in a formal insurance premium will mitigate against a single risk. In contrast, saving that surplus in a savings group which enables them to earn a return, access some risk cover in the event of a risk and critically they will have access to credit when they need it, allowing them to stretch their income when they need to meet a risk or take advantage of an opportunity. This suggests that the design of formal products and the language used to market them by providers to more closely resemble the tools that MSMEs are already aware of and using informally is something for formal providers to more explicitly consider.