ITC DIA Europe

Insurers: Essential Safeguards for SME Security and Growth

Written by Reinhard Saller and Esther Prax, InsurTech Hub Munich on Sep 21, 2023

In the realm of the global economy, the significance of Small and Medium-sized Enterprises (SMEs) cannot be overstated. These enterprises occupy an essential role within the national economies of nations, serving as catalysts for employment and hubs of innovation. The World Bank’s data underscores the substantial footprint of SMEs on the economic landscape: they constitute the majority of businesses worldwide and are pivotal in fueling job creation and global economic progress. Impressively, SMEs make up approximately 90% of all businesses and contribute to over 50% of the global workforce. In emerging economies, SMEs are instrumental in generating up to 40% of the national income, as measured by Gross Domestic Product (GDP). In Germany, over 99% of German businesses are SMEs, which generate more than one out of every two euros and provide well over half of all jobs – The famous German Mittelstand, which refers to the SME sector, is extremely diverse, ranging from family-owned companies to high-tech companies, and from one-person businesses to those employing people across the globe. 

SMEs: Driving Economic Progress and Innovation

In light of these insights, it is abundantly clear that SMEs emerge as indispensable drivers of economic growth, job opportunities, and pioneering innovations, transcending boundaries to make their mark in both high and low-income nations. In the ever-evolving landscape of commerce, Small and Medium-sized Enterprises (SMEs) find themselves navigating a complex web of risks, a reality shared with businesses of all sizes.  

Challenges in the Ever-Evolving Business Landscape

However, in recent times, SMEs have encountered a distinct uptick in the challenges they must confront and the existential impact of risks they are exposed to. The COVID-19 pandemic stands as a stark testament to the critical importance of effective risk management for the very survival of SMEs. SMEs are different in many aspects, distinguished by their limited resources and comparatively narrower knowledge base when compared to their multimillion-dollar corporate counterparts.  Unlike them, which boast specialized risk management departments, SMEs often find themselves in a state of relative unawareness regarding the intricate web of potential risks. Consequently, they are frequently left exposed to unforeseen events with a less impressive shield of protection. It is in this arena that insurance companies emerge as invaluable allies and enduring partners, offering relevant support to SMEs in their journey of building resilient businesses. 

Dual Struggle: Risk Awareness and Protection Implementation

SMEs struggle in at least twofold way: one is risk awareness and the other one is the implementation of effective risk protections. A recent study by Mapfre also uncovers a stark disjunction between the perceived and actual levels of protection enjoyed by SMEs. Astonishingly, over 90% of SMEs expressed confidence in the adequacy of their risk coverage, deeming it either very adequate or fairly adequate. However, the ground truth tells a different story, with a disconcerting revelation that one-third of SMEs remain utterly exposed, devoid of any protective measures against potential risks. 

These findings serve as a stark reminder that the disconnect between perception and reality in the realm of risk management can have severe consequences for the longevity of SMEs. As the corporate landscape continues to evolve, these revelations underscore the pressing need for SMEs to not only be aware of the risks they face but also to ensure that their risk protections are robust and aligned with the challenges of the modern business world. 

Bridging the Gap: Insurers’ Crucial Role in Safeguarding SMEs 

In the world of small and medium-sized enterprises, the gap between perception and reality in terms of risk coverage can have existential effects. Recent findings (A comprehensive study conducted by the Spanish insurer, MAPFRE, titled “360° Companies”) reveal that more than 90% of SMEs believe their risk coverage is either “very adequate” or “fairly adequate.” However, this comforting perception stands in stark contrast to the harsh truth: approximately one-third of these enterprises remain alarmingly exposed, devoid of any protective measures against the specter of potential risks. 

These revelations serve as an urgent call to action for insurers, as they underscore the critical role these financial guardians play in supporting SMEs on their perilous journey through the labyrinth of risk management. Here are some insights into how insurers can rise to this challenge: 

1. Power of relevance: Insurers can immerse themselves in the world of SMEs through smart partnerships with industry associations to co-create educational measures and raise awareness of crucial risks in the relevant moment, with tailored offerings and language. Collaborative partnerships between insurers, industry associations, and business support organizations can amplify the reach of risk management initiatives. 

2. Tailored Assessments & Advisory:  In the landscape of risk management the era of one-size-fits-all solutions is waning. Insurers find themselves on a new quest: the pursuit of tailored risk assessments. This mission demands a dissection of the unique threats confronting individual SMEs, with due consideration for industry, size, and geographical context. Simultaneously, insurers must harness the power of automation to scale their offerings effectively. This necessitates the adoption of digital tools for the initial data gathering process, which subsequently paves the way for the delivery of personalized solutions through an automation platform. 

3. Affordable Guardianship: Recognizing that financial constraints can be a big hurdle for SMEs, insurers should endeavor to craft insurance packages that are not only robust but also budget friendly. Modular policies can empower SMEs to cherry-pick coverage elements that resonate with their unique needs. 

4. The Continual Evolution: Risk management is a dynamic endeavor. Insurers should encourage SMEs to conduct regular reviews of their risk coverage, ensuring that it remains in sync with the evolving life stages of a small and medium enterprise. Insurers could even build data bridges to be able to conduct regular coverage reviews and proactively reach out to SMEs for a change as well – this way taking the burden off SMEs.

5. Beyond Coverage: It’s not just about insurance; it’s about risk mitigation. Insurers can offer a holistic approach that includes guidance on risk prevention strategies, crisis management planning, and post-event support to help SMEs bounce back from unforeseen adversities. 

6. The Fundamental Element for Cultivating Trust and Sustaining Long-term Partnerships – Technological Advancement: In contemporary times, the essential factor for building trust and fostering enduring relationships between SMEs and insurers is found within the domain of technology. By fully embracing the digital age, insurers can access a range of opportunities to serve the best interests of SMEs. They can effectively employ advanced tools such as data analytics and IoT devices to monitor and mitigate risks, all while encouraging proactive safety measures through discounts. This technological collaboration serves as a critical foundation for a successful and enduring partnership.

In a world where perception and reality often diverge, insurers wield the power to bridge this gap. By adopting strategies like these, they can emerge not only as financial guardians but also as educators and partners in SMEs’ quest for resilience and longevity in an ever-changing corporate landscape. 

InsurTech Hub Munich is launching its NXT:Commercial Innovation Programme focusing on the role of the insurers in the SME sector. The programme will explore the verticals of cybersecurity, digitalization and sustainability together with ITHM’s global partner network and selected startups to ignite innovation within the insurance industry.

London 27-28 January

ITC DIA Europe

00 Days
00 Hours
00 Minutes
00 Seconds
Register your interest
ITC DIA Europe - London 2025 Register your interest