Workplace injury, property damage, and liability are the top 3 biggest insurance risks for small and medium enterprises (SMEs) in Singapore over the next 12 months, according to AIG Asia Pacific Insurance Pte. Ltd.
SMEs in Singapore face rising business risks as they deal with increasing costs amid an economic slowdown. SMEs claimed more than S$5 million last year, and AIG Singapore expects the claims volume to stay in this range over the next 12 months.
Claims data from AIG Singapore reveals the top three risks for SMEs in Singapore arise from workplace injuries (56 per cent), fire or water damage to property (20 per cent), and legal liability (20 per cent).
A particular area of concern is workplace injury, with claims growing by 17 per cent in 2015 compared to 2014. The amount paid for workplace compensation claims is also forecasted to increase by 20 to 30 per cent this year.
Based on AIG Singapore’s data, the manufacturing industry saw work-related injuries account for 90 per cent of its top claims over the last three years. The top three industries that submitted SME-related claims are food and beverage, retail, and manufacturing.
AIG Singapore’s Head of SME Packages, Krishna Moorthi Sri Ramalu, said: “With growing awareness of external threats such as cyber attacks and data theft, much attention has been placed on how these external risks can cripple SMEs. While these threats are indeed significant and on the rise, SME owners must not forget their assets are exposed to internal risks every day.
“AIG Singapore forecasts that the greatest risks SMEs will face in the next 12 months are due to internal factors such as injury to employees and damage to property and equipment.”
A risk that can't be ignored
He added, “Workplace injury claims accounted for over half of AIG Singapore’s claims last year. It is a key risk factor for SMEs that cannot be ignored, particularly with a 10 per cent rise in fatal workplace injuries from 2014 to 2015.
“Fire breaking out at SMEs’ premises is also a risk that, while not as common, can cause severe and long-term losses that have a huge financial and reputational impact on the business.”
Krishna highlighted the example of a fire at a major shopping centre earlier this year, which caused the shopping centre to close for around five days. This resulted in 13 potential property damage claims (including seven business interruption claims) from AIG’s SME clients operating in the shopping centre.
The total estimated cost of these claims is S$241,000, which can be a significant out-of-pocket sum for the SMEs if they do not have any insurance cover.
In 2015, the average claim made by an SME was around S$6,000, while the highest claim was S$214,000 made by a medical clinic when its water pipe burst and damaged both the clinic and neighbouring retail units.
“SME owners often do not invest in risk management and contingency planning as they are preoccupied with the day-to-day running of their companies. However, it is precisely because of their smaller scale that SMEs can ill-afford hefty losses caused by business interruptions or closures, loss of income, supply chain delays or damage to neighbouring properties.
“In fact, this year’s tough economic climate exacerbates the financial impact on SMEs. In the event of incidents such as fires, property damage, or floods, they may be hit with high costs and forced to stop operating for a period of time. SMEs need to look at how they can protect their business operations and get these operations back on track swiftly if incidents occur,” Krishna said.