Why Kenyan small firms need insurance now more than ever

Kenya’s micro, small and medium-sized enterprises (MSMEs) are a critical pillar of the economy.

Statistics from the Trade and Industry Ministry show they contribute up to 24 percent of the country’s GDP, over 90 percent of private sector enterprises and employ 14.1 million people, accounting for 93 percent of the total labor force.

Despite their critical role in development, many MSMEs are struggling to stay afloat due to the high levels of risks and uncertainties they face.

The Kenya National Bureau of Statistics (KNBS) MSME Report of 2016 reveals that there is a high mortality rate among them.

About 2.2 million MSMEs close within five years, with 46 percent not making it past the first year of operation, due to several factors, including risks such as political instability, terrorism, unexplained fires, theft and burglary, compromised IT infrastructure (cybercrime), workplace accidents and contract disputes among others.

One of the primary reasons why MSMEs in Kenya struggle to manage risk is the lack of effective strategies. Most of them are managed by individuals lacking the expertise to identify and mitigate risks.

Additionally, banks and other financial institutions are often hesitant to lend to them, due to their risky profile.

This is where insurance comes in. By taking out policies, MSMEs can transfer some of their risks to insurance companies, which can help them manage their exposure.

Insurance can also help MSMEs access finance. Banks and other financial institutions are more likely to lend to MSMEs that have insurance than they would those that don’t.

Political realities in Kenya have made insurance ever more critical for small businesses. Civil unrest, riots, and acts of terrorism have in the past disrupted MSME operations, including disruption of supply chains, reduced demand for goods and services, loss of revenue and destruction of assets.

Insurance policies such as business interruption cover can help mitigate the impact of political instability by providing financial compensation for losses incurred due to disruptions to business operations.

Fire, theft, and burglary are also significant risks facing MSMEs in Kenya. Small firms that are not covered against these risks are forced to bear the full cost of the loss, which can be financially crippling.

Policies such as property insurance can help these businesses guard against loss by providing financial compensation for losses incurred due to such incidents.

Workplace accidents and diseases are also significant risks that MSMEs in Kenya face. Workers' compensation insurance can provide much-needed financial relief to employees who are injured or become ill due to their work.

Personal accident insurance can also provide financial relief to business owners who suffer from accidents or illnesses, ensuring that their firms continue to operate even when they are unable to work.

Collaboration with and between interested parties including insurance service providers, government agencies, and other stakeholders can promote insurance uptake among MSMEs and support the development of this vibrant and resilient sector in Kenya.

The writer is the chief executive and chief principal officer of Britam General Insurance. [email protected]