How does insurance protect SMEs?

Risk preparedness is a concern that affects the very survival of an SME. The 360° Companies study prepared by MAPFRE brought this reality to light: seven out of ten SMEs that experience a serious loss will go under if they do not have the right insurance. Another finding illustrates the difference between actual and perceived protection for small and medium-sized businesses: more than 90% of SMEs believed that the level of coverage for their risks was very adequate or fairly adequate, but, in reality, one third of SMEs’ risks were not protected at all.

The risks that a small or medium-sized enterprise may face, and which can be covered by insurance, are divided into four types:

• Risks affecting property

These are risks that affect the company’s tangible and intangible assets: its buildings and installations, furniture, electronic and computer equipment, raw materials, stock, vehicles, etc.

Property insurance protects SMEs’ investment in these assets against all kinds of risks, such as theft, fire, electrical damage, adverse weather conditions, or vandalism.

• Risks affecting the income statement

These risks include, on the one hand, possible shutdown of the company’s activity due to an accident or serious accident, and, on the other hand, possible non-payment for sales made on credit.

In the first case, insurance is decisive in keeping the SME’s doors open. The aforementioned 360° study cites that seven out of ten SMEs disappear in the event of a serious loss, due to the fact that they do not have insurance to cover the temporary cessation of activity. Many SMEs are unaware of the real impact that such a situation can have.

But a loss is not the only unforeseen event that can affect a company’s financial stability: when it comes to credit sales, all too often SMEs face non-payments blindly. An insurance policy with this coverage handles the customers’ solvency and risk analysis, the process for recovering unpaid debt, and advances compensation for non-payments.

• Third party liability risks

The activity of a company or its employees may cause damage or injury to third parties, leaving it liable to compensate those affected. Third party liability insurance pays out compensation when the insured party is required to do so.

Examples of these risks are:

• Those arising from the company’s own activity (such as a loss affecting a neighbor, damage to buildings or rented property, damage to goods in storage or during transport, breach of contract, etc.).
• Workers’ compensation claims for accidents at work.
• Risks produced by the goods or services after delivery.
• The liability of administrators and executives, in the event they are obliged to respond with their own personal assets to damage caused by the company as a consequence of not having performed their role with sufficient diligence. 

• Risks affecting people

This category includes all coverages that protect the company’s employees and include commitments and benefits such as pension plans, health insurance, or accident insurance for employees, among others.

In sectors with high turnover, measures of this type can help to attract and retain the best workers, in tandem with remuneration systems that reward long-term permanence in the company. Healthcare proposals, for example, are becoming increasingly popular, and not only because of the benefit for the employee; for an SME with a small workforce, allowing employees to be seen by a doctor can offer a major advantage.

One of the most influential factors in a company’s level of insurance coverage is its revenue and size. It is a question of structures and diversification: in general, when an SME grows, it creates new departments, and incorporates professionals who deal with risk and the insurance sector — for example, profiles in financial or human resources — history shows that it seeks greater coverage for its risks, as opposed to smaller SMEs that opt for more basic protections.

“The vast majority of SMEs are under-insured; there is widespread lack of coverage for their risks. In many cases, they believe certain insurance solutions are only for large companies, or they do not know that certain situations can be covered, such as non-payment by suppliers,” explains Carlos Grangel, Commercial Development Director for Self-Employed Workers and SMEs at MAPFRE España. In reality, he affirms, “they are perfectly designed and adapted for SMEs,” even in terms of cost.

Good risk management can be within the reach of any SME. SIRMAP 360° is an initiative from MAPFRE that provides a complete analysis of an SME’s level of risk and the keys to prevent and manage it. It is a way to “democratize” solutions that are already available to large companies due to their own resources, states the supervisor of Self-Employed Workers and SMEs at MAPFRE España.

Using resources efficiently and sustainably is increasingly high on the agenda of SMEs. They take this approach not only to reduce costs, but also to improve their reputation and positioning and even generate new business opportunities.

In view of this sensitivity, MAPFRE offers insured companies in Spain coverages to help them save on their bills (including an energy tariff comparison tool) and to improve their sustainability. These tools enable them to find out how their company is faring in relation to the main circular economy indicators and the benefits of applying these indicators, as well as to calculate their carbon footprint and create a plan to reduce it.

MAPFRE can also act as an ally for emerging companies that are undertaking a related activity through Insur_space, MAPFRE Open Innovation’s fast-track-to-market program for startups. This initiative, which has already benefited dozens of new organizations, allows insured companies to launch a pilot in less than six months together with any MAPFRE company at the global level, providing companies with knowledge and positioning in strategic markets and up to EUR 100,000 of financing without entering into shareholding.

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