Insurance sector taps into the SME potential in the UAE

The UAE has identified Small and Medium Enterprises (SME) as one of the main drivers to its economic growth. Accordingly, it has been a key focus area for some years. The sector has been provided strong regulatory support and financial incentives to flourish and consolidate the UAE’s drive to make itself a global business hub.

A national agenda, business accelerators, 100% foreign ownership, free zones, dedicated government programs are just some of the key initiatives rolled out to assist SMEs. These have clearly worked well. In mid-2022, it was estimated that SMEs contribute 63.5 per cent of the non-oil GDP. The SME sector numbered around 557,000 enterprises in 2022. This is expected to touch a million by 2030.

To the UAE insurance industry which has been growing from year to year, the SME sector, especially the new start-ups, presents another massive opportunity to further growth.

For the start-up SMEs grappling with several mission critical issues, consideration of insurance coverage often takes an incredibly low priority, unless the insurance happens to be mandated. This approach, of course, is not advisable, for when any incident does occur recourse to (the potential) protection under an insurance policy suddenly appears invaluable.

Studies have indicated that SMEs, in keeping with the evolving and competitive ecosystem, are progressively adopting technology and digitization in various forms to meet their business objectives. They have also come to expect this from their various providers including suppliers, logistics partners, banks etc. Similar expectations are also there from the insurance industry. The insurance industry to become more relevant to SMEs, has been increasingly investing in the move towards digitization, customization, and product simplification.

Many kinds of insurance policies can be purchased online and both insurance companies and insurance brokers offer the facility of a seamless end-to-end transaction from the enquiry stage right up to digital payment and electronic despatch of policy documents.

To make the purchase process more streamlined and effective, insurance covers which are found to be more routinely and frequently taken have been bundled together with the inbuilt facility for the buyer to opt out of, or add back, coverages which the buyer may deem necessary to suit the specific risk exposure or need. Insurance for assets, liability, workers’ compensation, employer’s liability, money insurance are some of the more commonly bought covers with options for adding on business interruption or loss of profits insurance, machinery breakdown, fidelity guarantee etc. Even medical insurance with customization options have been made available by certain insurers.

The dropdown/opt out model reduces the risk to the decision maker at the SME of unknowingly not taking a particular type of coverage. The bundled option provides ease of administration. From the insurer’s perspective, bundled policies are akin to multiple purchases due to which there are lower acquisition costs a part of which is passed back to the customer by way of discounts.

Admittedly, the broadbrush ‘one size fits all’ approach will not suit all SMEs due to the inherent complexities of some businesses. This is where insurance companies and brokers can, and are, helping in conducting detailed risk analysis for the more complex operations and design bespoke risk management and insurance solutions.

The insurance industry is also trying to shift from its traditional reactive role to providing tools actively contributing to boosting the various needs of SME operations.

A typical example is trade credit insurance which apart from providing protection for receivables also, as a spinoff, facilitates more favourable borrowings, as well as the confidence to increase business on the back of an insurance backed guarantee.

A well-structured Employee Benefits program can go a long way in retention of staff and motivation of employees. Likewise, recognizing the growing cyber threat, insurers have rolled out a variety of cybercrime and cyber liability policies.

The insurance industry in the UAE realises the immense potential of partnering with SMEs and are taking increasingly bigger and faster steps in the process of evolving from a reactive service to a pro-active service partner.