Singapore SMEs face risks as many opt for minimum insurance coverage

Insurers say major disruptions can pose threat to survival of smaller firms

Smaller companies in Singapore are subject to the same risks as any other businesses and, due to their size, having adequate coverage against major shocks could mean the difference between survival and oblivion.

Most small and medium-sized enterprises (SMEs) here, though, buy insurance that is mandated by regulatory or contractual obligations and nothing more, noted Mr Goh Shun Quan, head of underwriting for retail and SME at insurer QBE Singapore.

For example, an SME will buy work injury compensation insurance to cover employee injury or public liability insurance for third-party injuries or property damage, if it is required by its landlord.

He added that other types of insurance that an SME may need but are not compulsory include business interruption insurance; property insurance for its building, machinery and inventory; employee benefits coverage for medical, personal accident and corporate travel expenses; and trade-specific insurance such as for marine cargo, professional liability and cyber attacks.

Ms Jenny Lim, chief executive of  insurance broker Howden Singapore, said SMEs tend to overlook an employee benefits insurance programme, which, if implemented, can help the SMEs to attract and retain talent. 

SMEs tend to overlook an employee benefits insurance programme, which, if implemented, can help the SMEs to attract and retain talent.

 

Business contingency events such as a fire which breaks out and shuts down the factory for an extended period of time or the temporary closure of the business because of hygiene lapses can potentially cost a lot of money.

However, Zurich Insurance has observed that fewer than a third of SMEs in the region have business interruption insurance, which covers the loss of income over a specified period of time, during which a company cannot operate or is closed.

Mr Sean Walker, head of commercial insurance and chief technical officer for the Asia-Pacific region at the insurer, said insurance provides the financial payouts that a company needs to get back on its feet, as many businesses often do not have sufficient financial funds readily on hand to deal with these unexpected events.

Howden Singapore has seen instances where those without adequate coverage will then have to write off assets, which can be their equipment, warehouse or inventory, from their balance sheet, said Ms Lim.

Howden Singapore has seen instances where those without adequate coverage will then have to write off assets, which can be their equipment, warehouse or inventory, from their balance sheet

Mr Goh said in this current uncertain economic environment, however, many SMEs are understandably cautious about buying too much insurance, even if that means that they may end up being underinsured.

QBE’s annual SME survey, released in February, showed that 70 per cent of respondents cited price as their top consideration when deciding which insurance policies to buy.

This is up from 67 per cent in the 2024 survey.

He added that many companies often go for the minimum coverage limits, which may not be sufficient to cover the full claim amount.

Howden’s Ms Lim cited a case of an SME that had a mini explosion on its premises. Because the company bought the minimum amount of property insurance, the payout was insufficient to cover the costs of buying new machinery and repairs to its premises.

Furthermore, even though the SME had business interruption insurance, its coverage was only for a short duration. The payout could not cover the longer period of interruption as a result of supply chain delays and the time taken to get a permit, she added.

On the other hand, an SME in the landscaping industry had a good liability policy, so it was able to deal with a lawsuit by a customer who alleged that its landscaping services damaged their property. Its insurer provided legal support and the policy covered all its legal expenses, Ms Lim noted.

“It is a very cost-effective way of transferring the risk to the insurance market,” she said.

QBE’s Mr Goh said there is also a common misperception that self insurance is cheaper than buying an insurance policy for the business.

In its survey, the insurer found that SMEs are actively seeking solutions to counter cyber threats. Cyber insurance does not appear to be a preferred solution, though, as the proportion of businesses covered by cyber insurance dropped to 36 per cent in 2025, from 38 per cent in 2024.

Mr Goh added that there are SMEs that may not know what insurance they lack and what kind of coverage they should have. For example, not all SMEs will need marine insurance for goods and cargo.

These SMEs, Mr Goh said, will need to sit down with their insurance representatives to customise a suite of solutions to their needs.

Zurich Insurance’s Mr Walker said insurance propositions can be tailored to the different types of SMEs. While a micro SME may only need a basic level of coverage for its inventory, a hawker will need more coverage, for inventory and perhaps liability protection against food poisoning incidents, for example.

The solutions can be bundled together or unbundled, depending on the risks that the company faces, Mr Walker added. He noted that most small businesses encounter only one to two insurance claims in any given calendar year. These claims may not be significant as well. Thus, many SMEs may not fully understand the benefits of insurance “until something really bad happens”, he said.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction