LUSAKA, ZAMBIA – While a lot of hard lessons have been learned from the COVID-19 outbreak, few have been as resounding as the need to hedge against unforeseen calamities.
The outbreak brought several sectors and, in some cases, entire economies to an abrupt stop as governments the world over scrambled to slow the virus’ spread. As a result, quite a few businesses and individuals had to deal with a sudden loss of income.
“The local SME sector has taken a massive hit from reduced trade, with countless businesses facing the prospect of going under as their cash reserves dwindle,” explained Stanbic Insurance Brokers Zambia Chief Executive Officer Chilufya Nyirenda during a recent Stanbic Anakazi Online Conversations webinar on the subject.
“Part of the reason we see such a huge strain on the local SME sector is that most small business owners do not know how – or simply neglect – to put in place measures to mitigate the impact of unforeseen risks; viewing insurance as a luxury reserved for the elite and big corporates,” she said.
“However, hedging against risks is a responsibility we must all take. The question every investor and business owner should ask themselves is, ‘why work hard to grow an investment or business only to leave it completely exposed to economic shocks and other risks that may wipe out their value in an instant?’
“A lot of problems some SMEs are facing due to the partial lockdown would have been avoided or mitigated with insurance. It is time entrepreneurs started viewing protection against unforeseen risks as a critical part of running a business because it helps protect their investment – and by extension their dreams and aspirations.”
Meanwhile, Pensions and Insurance Authority Head of Policy and Analysis Namakau Ntini noted that insurance was not just about risk management but also a way for businesses to ensure sustainability in difficult times.
“Sustainable SMEs typically have a set of goals that they work towards over the course of time. As they grow, so do the magnitude of these targets which in turn require more resources to maintain the expansion,” she said.
“The absence of cover leaves this growth especially vulnerable to external shocks in that the loss of a critical asset may cause an interruption to cashflow thereby subverting any gains the enterprise may have made towards achieving its goals. Worse off, such losses have the potential to turn a business’ trajectory from expansion-driven to a fight for survival.”
Ntini added that there was no such thing as “one size fits all” when it came to insurance cover saying that each business needed to engage their insurer and find a policy that covered their specific risks.
“It is important to find a policy that not only protects you against your biggest risks but also helps you save money.
The key is to understand what you are buying and how the policy is meeting your needs to avoid buying policies that do nothing for you.”
Earlier this year, the PIA issued a directive that compels insurers to provide their clients with Key Fact Statements that breakdown insurance jargon to help clients understand the provisions of a policy before they sign up.
This directive was part of several other guidelines introduced by the authority to help bridge the gap between insurers and the public in the hopes of demystifying the sector thus making it more relevant at business and individual level.
If harnessed, the insurance sector has the power to offer critical support to national growth in that the more businesses hedge against losses, the more likely they are to survive hardships and continue contributing to GDP.