The Insurance and Risk Finance Facility of the UNDP is advocating business interruption insurance for Micro, Small & Medium Enterprises (MSMEs) across the developing world to help build community resilience for millions of small business owners and their workers.
There are over 65m MSMEs globally without access to credit, so providing business interruption insurance is estimated to cost around $1.63bn per year, a relatively small price tag given the potential long-term costs associated with development and aid, and massive impact on communities due to failing businesses, Mr Patrick Tarbuck, a consultant with the UNDP Insurance and Risk Finance Facility, says in a blog.
He says that in terms of daily protection, as little as $10-15 per day over a six-month period post-disaster can make a significant difference to small businesses in developing countries.
UNDP’s proposition focuses on providing business interruption insurance for pandemics and disasters to more than 170m MSMEs in 10 developing countries where there is a critical need; Bangladesh, Cambodia, Ghana, India, Indonesia, Kenya, Morocco, Nigeria, the Philippines and Sri Lanka.
The target enterprises will be of the smallest kind, with between one and 10 employees, and we estimate such an initiative would reach up to 300 million employees. The provision would be inclusive or micro in nature, with a total cost of $4.37bn for premiums per annum, based on an average of $25 per policyholder.
Business continuity insurance is missing link in protection
Mr Tarbuck says that most of the microinsurance available to small businesses revolve around life, accident and health risks.
“Business interruption insurance has been largely identified as a critically underserved area. Our SME business interruption initiative attempts to reset the odds stacked against this critical economic sector.”
Key elements of the UNDP initiative would be:
• Cover for loss of income (including loss of gross profits, wage costs and cost of expenses) and property damage after a disaster has occurred.
• Bundled offer for pandemic risk and climate risks (flood, drought, cyclone/typhoon etc.).
• Parametric trigger for climate and pandemic risks, with payouts triggered automatically using satellite technology and smart contracts.
• Educational workshops on financial planning and book-keeping, especially for women SME-owners.
• Linked to official health and disaster information and advice.