Insurance for Micro, Small and Medium Enterprises (MSMEs): How to Effectively Protect Your Business?

Micro, small and medium-sized enterprises (MSMEs) are fundamental to the Panamanian economy. According to an article published in 2023 entitled “Panamanian MSMEs have greater access to financing through CABEI support”, the Central American Bank for Economic Integration indicated that 92% of companies in Panama are MSMEs, distributed firstly in microenterprises (84%), followed by small enterprises (13%) and finally medium-sized enterprises (3%). It is no secret that operating in a competitive and constantly evolving market involves facing various risks that can compromise the stability and growth of MSMEs. Insurance is a key ally and tool to protect the business and ensure its continuity.

The Importance of Insurance for MSMEs

MSMEs face many of the same risks as large companies, but due to their size, they have less liquidity to face them. According to the article mentioned above, microenterprises represent 84% of MSMEs, constituting an important part of the Panamanian business fabric, so their vulnerability to adverse events can have a reverberating impact on the local economy. This is because, particularly in the case of micro and small enterprises, the occurrence of an accident may cause significant damage and sometimes even lead to the closure of their businesses. Although the capital of micro-enterprises is more limited compared to small, medium and large enterprises, this is not an obstacle for them to do without a good insurance portfolio, but rather it is the reason why they should have them: not only as an investment in their future, but as a strategic necessity to guarantee the sustainability of the business. Insurance provides a safety net against unexpected events, allowing entrepreneurs to focus on growing their businesses, rather than worrying about potential financial losses.

Types of Insurance for MSMEs

To effectively protect their business, MSMEs should seek advice from experts in the field who can tell them which insurance is essential for their business. Some types of insurance to consider are the following:

1. Civil Liability Insurance Non-contractual civil liability insurance protects the company against legal claims for damages to third parties during its business. This insurance should not be confused with the one that covers contractual civil liability, which is the one that protects the company against legal claims from its clients. We also think it is important to have this one, although it is not widely marketed in Panama.
2. Fire Insurance Usually covers damage to the structure of the property. This type of policy is required as a guarantee by banks that grant mortgage loans, but it is not only necessary in this case. We consider that even if the entrepreneur does not have a mortgage loan on the property he owns from which he operates the business, taking out this insurance is essential for the business. Within this line, content insurance can be included.
3. Business Interruption Insurance Protects the company against financial losses resulting from interruptions to its business, covering some fixed expenses such as rent and payroll while the business is unable to operate.
4. Life and Health Insurance for Employees Providing life or health insurance to employees not only improves their well-being, but also strengthens loyalty to the company. This is attractive when hiring, and important for retaining talent.
5. Auto Insurance If your business uses vehicles to transport products or provide services, this insurance is vital to cover damage, theft or accidents related to company vehicles.
6. Fidelity Insurance It covers the employer’s loss of money or other property due to fraud or dishonest behavior of its employees.
7. Cyber Insurance With cyber-attacks on the rise, MSMEs need to protect their data and that of their customers. This insurance covers losses associated with data breaches, identity theft, and related legal costs.

Benefits of Insuring Your Business

1. Business Continuity Insurance enables businesses to recover quickly after an adverse event, minimizing disruption and ensuring financial stability.
2. Market Credibility Insured Insured businesses project trust and accountability to their customers, suppliers and partners. This can be a key differentiator in a competitive market.
3. Access to Financing Insured businesses are more likely to be considered by banks and other financial institutions when seeking financing.

Tips for Choosing the Right Insurance

1. Assessing Business-Specific Risks Every business has unique needs. It is important to identify the risks most relevant to your industry and operations and purchase insurance to protect you from them.
2. Compare Offers from Different Insurers Not all policies are the same, differing in price, coverage and exclusions. It is important to evaluate the entire market offer to contract the policies that best fit your needs, with the best limits and deductibles, for the price you are willing to pay.
3. Seeking Professional Advice Working with an insurance broker or specialist advisor who understands the risks that your business may face is beneficial when putting together an insurance portfolio. Brokers have extensive knowledge of the policies offered in the market, and by knowing the risks of the potential insured's business, they can identify those policies that best fit their needs. They also offer support and guidance when it comes to filing claims due to the occurrence of incidents.

The Role of Insurance in MSMEs

In a competitive market, MSMEs need to be prepared to face any eventuality without compromising their operations. Insurance not only offers financial protection but also helps build a solid foundation for growth. Insured businesses are more likely to survive unexpected challenges, attract customers and suppliers who value stability, and project a professional and trustworthy image.