Insurance is a valuable tool that businesses can use to protect themselves from the multitude of risks they face on a daily basis. Small and medium enterprises (SMEs) in Kenya have generally been slow to invest in anything more than the statutory minimum insurance. However, this could be leaving them dangerously exposed.
In 2010, an International Insurance Foundation study found that, while 91% of SMEs in Kenya had some form of insurance, 53% only bought the minimum required. And in 2014, researchers from the Africa Nazarene University and the University of Nairobi found that insurance was the least common approach used by SMEs to mitigate risk. Most preferred to use credit scorecards, diversification or collaboration to protect themselves against the 15 categories of risk identified.
It’s clear that most SMEs lack comprehensive risk and asset management solutions. These companies are built only through huge effort, yet in the event of fire or burglary they rarely recover due to a lack of risk coverage. It’s an issue of competitiveness, ensuring that as an entrepreneur you have in place the right blend of risk management solutions.
So let’s take a look at five key categories of insurance cover that could protect your SME.
1. Liability insurance
There are various categories of liability insurance you might want to consider, depending on the nature of your business. Here are the main ones to be aware of in Kenya:
There are various categories of liability insurance you might want to consider, depending on the nature of your business.
Public liability insurance: This is designed to provide protection to an organisation against legal liability to members of the public. In particular, it reimburses costs incurred due to legal action taken as a result of losses, damage to property, injury or even death caused by negligence on the part of the insured. This includes both paying any compensation the court awards as well as covering the legal costs involved in defending the case.
Product liability: This type of insurance covers damages caused by products a company supplies and related legal and court costs. It’s often bundled together with public liability insurance or provided as an add-on.
No matter how much care you take, it’s impossible to completely avoid the risk that your products will cause harm. So whether you’re a retailer or a manufacturer, if your company sells products, product liability insurance provides invaluable protection. Otherwise there is a risk that a court case could not only ruin your reputation, but take your business into insolvency.
The coverage can be tailored to make sure it suits the specific types of products you sell.
Professional liability: Specifically designed to protect service providers from legal expenses resulting from customers suing for errors, negligence or malpractice, professional liability insurance is sometimes referred to as errors and omissions insurance.
It’s particularly relevant for providers of professional services, such as lawyers, accountants and business consultants. Some clients require service providers, including contractors, to have professional liability insurance before they engage them. This alone makes suitable professional liability coverage a great investment if you’re a service provider.
Again, the policy can be tailored to make sure it’s appropriate for your industry sector and the services you provide.
Employer’s liability insurance: The Work Injury Benefit Act (WIBA) in Kenya came into force in 2007 to help employees obtain compensation for work-related injuries and illnesses. The Act made it compulsory for employers to have insurance in place, from an approved provider, to cover related claims from employees.
However, you might also want to consider going above and beyond this by taking out employer’s liability insurance. This will protect you in case an employee decides to exercise their right to sue you for damages under common law.
It’s also worth noting that WIBA insurance usually only covers compensation for accidents and injuries that come about during working hours. WIBA Plus policies are available that extend the coverage to include time outside work.
Director’s and officer’s liability: Director’s and officer’s liability insurance protects a company’s most senior staff from the impact of legal claims related to decisions and actions they make within the scope of their official capacities.
This class of liability insurance provides protection for the business leaders themselves. As well as protecting them from the financial impact of personal lawsuits, it can provide a financial cushion if they lose their job as a result of a particular decision or action. However it also provides protection for their companies, enabling them to recoup money they may spend helping a senior staff member defend their case in court.
Director’s and officer’s liability insurance is sometimes bundled together with other coverage to form a comprehensive package of management liability insurance.
Unfortunately there is always potential for things to go wrong, despite best intentions. So the right mix of liability insurance is essential to make sure your business is equipped to withstand legal action that may be taken against it.
2. Property insurance
Moving on to our second main area, and this one is equally relevant whether your business owns or leases its premises.
There’s a wide range of options to choose from. Coverage is available for specific items, from electronic equipment to goods in transit. You can also choose to address specific risks, from fire to terrorism, or go for open perils cover, previously known as ‘all risks’, which covers losses or damage due to any cause other than those specifically excluded.
If you have valuable stock or equipment, the loss of which could have a devastating impact on your business, it’s definitely worth investing in suitable property insurance. The cover will usually apply while the property covered is within a specified geographical area.
If you have valuable stock or equipment, the loss of which could have a devastating impact on your business, it’s definitely worth investing in suitable property insurance.
3. Health insurance
Many companies provide health insurance for their staff to cover the costs of their medical care, up to a certain limit.
Health insurance packages generally cover inpatient treatment and care but some also include outpatient care and medication. Some higher level packages include preventative care, such as general health checks and screening, helping to pick up and tackle conditions before they become serious. It’s usually possible to add on optional extras such as dental, optical or maternity cover.
There are now various health insurance schemes in Kenya aimed specifically at SMEs, which include affordable entry-level options.
Here in Kenya, where state health provision is very limited, private healthcare is generally seen as essential. However accessing it to tackle a serious health condition without the benefit of private health insurance can have a devastating financial impact on individuals and their families. So providing health cover for employees is a great way to attract and retain good staff.
4. Business interruption insurance
This is designed to protect an organisation from the financial losses it could incur as a result of a disaster interrupting business as usual. Policies generally provide cover for specific things, such as increased costs of working and accountants’ fees incurred in preparing a claim, as well as negative impact on profit.
Business interruption insurance is particularly relevant for companies that depend on a specific location, such as a retail shop.
To make sure you receive the financial boost you need to get back on track following a disaster, it’s important to come up with an accurate idea of the maximum period of interruption you might face and the maximum amount to be covered.
5. Cyber risk insurance
Experts estimate that Kenya lost KES 17.7bn to cybercrime in 2016. In terms of percentage of GDP, Kenya was hit worse than any other African country.
With IT systems becoming increasingly integral to running a business, it’s not hard to imagine the impact a technical disaster could have on a growing company.
Thankfully there is now insurance available specifically designed to protect companies from losses incurred due to cyber security issues, including system damage caused by viruses, hacking, malicious employees or simply by accident.
There is now insurance available specifically designed to protect companies from losses incurred due to cyber security issues, including system damage caused by viruses, hacking, malicious employees or simply by accident.
Choosing the right products
Having the right insurance in place could make the difference between your business surviving or going under. However it’s important to select the right combination of coverage to suit your company’s circumstances, needs and budget.
In recent years several bundled insurance products aimed specifically at SMEs have been launched in Kenya. These offer a range of different types of coverage to suit the needs of smaller businesses. A package such as this might be a good option for your company, particularly if you’re on a limited budget. But be sure to check that nothing vital is excluded, or arrange additional cover to fill any gaps.
It’s always safest to consult an insurance adviser, who can help you to arrange a mix of policies that work well together, providing the coverage you need. They may even be able to liaise with insurers on your behalf to tailor policies to suit your specific needs and to avoid overlaps, which could help you make savings.