31 October 2019

Price of Doing Business

If you’ve had the misfortune of losing your mobile phone, you’ll know how distressing it can be. And that’s just not to the extent of merely purchasing another, equally compatible device. It’s the thought of losing all those important contacts that really feels like you’ve been isolated from the world.

But that’s okay…no need to fly off the handle just yet. If you’re a Google subscriber, chances are your contacts have been stored in the cloud. And as for your mobile device, you’ve got insurance coverage, don’t you? Ahh…so here’s the crunch. On both accounts, whether you’ve had your contacts stored away safely in the cloud, or your device assured against theft; having insurance makes a practical point.

To Malaysians, vehicle, health and home insurance coverage is commonplace, either by way of mandatory requirement, as in home and vehicle insurance; a matter of practical desire, or a means of saving for education or retirement. No matter how you look at it, peace of mind comes with a good coverage plan based on what you hold dear to you.

But since we spend most of our waking hours at work, aren’t we supposed to make that a priority as well? Sure…if you’re fortunate enough to be employed by a reasonably established entity, you’d probably be well versed with your coverage plan. But what if you’re self-employed or an entrepreneur? What if you’re an SME?

Well, logic dictates that fire, machinery breakdown, robbery and accidents pose equally detrimental consequences if they happen; causing losses, delays, and even legal implications. Cyber security in recent years have also become a point of concern with the likes of hackers becoming more sophisticated, and the consequences of identity theft and data vulnerabilities growing more and more apparent by the day. So, whether big fish or small, the chances of getting snagged by the hook are just the same.

Let’s put the risk factor in a local perspective. With more than 900,000 entities in Malaysia, SMEs are regarded as the driving force of the Malaysian economy. According to Entrepreneur Development Minister, Datuk Seri Redzuan Yusof, Malaysian, SMEs are expected to contribute a whopping 41% to the local GDP by 2020. This means SMEs play a big role, and the Government of the day has already deployed plans with strategic initiatives like the National Entrepreneur Policy 2030, which aims to drive SME growth.

But here’s the thing, it’s been reported that almost half of Malaysian SMEs are not covered under any insurance plan. Many believe that this is simply a matter of education and misplaced priorities, however, a closer study of the groundswell would incline one towards the monetary perspective. Meaning funding constraints involved in running a business.

When looking at insurance, SMEs may lack the calibre of income to accommodate premium payments as this may impinge on their ability to operate efficiently rather that secure their entrepreneurial objectives. Premiums are viewed more as a liability, locking-up funds that could be used for expansion and productivity improvements. Therein lies the catch-22 which hinders most SMEs from seeking a comprehensive protection plan.

That said, surely there must be something that can be done. Afterall, we’re in the 21st Century and familiarizing ourselves with impressive terms like IR 4.0 and IoT. Isn’t there any way we can fix this predicament?

The answer to that question is a resounding YES – through P2P funding. In fact, the Malaysian Government was swift enough to recognize its propensity by recently according licenses to several companies involved in P2P operations. Accessing funds with the use of little investments made by regular people may be a hard pill to swallow for the passionate sceptic, but a quick look at the success of fintech evolution around the world, especially in developed countries, may help quell one’s doubts and steer them in the right direction.

Notably, P2P funding, especially in insurance premium funding is at its infant stage in Malaysia despite it being around for more than 60 years. In 2015, insurance premium funding on a global scale recorded a market share of close to $60 billion. More than 1400 companies in the United States offer insurance premium funding while a third of general insurance policies are funded by insurance premium funding in Australia.

Now that’s market potential that opens a myriad of possibilities to SMEs, Investors and Insurance providers. Because it spells peace of mind and strikes a measure of armour for the nation’s economic health.

Although there are a host of funding possibilities through P2P platforms available to Malaysians today, Insurance Premium funding strikes a chord in appropriating a mitigating attribute in a world where risks are unavoidable. You could say, it’s like how a prudent engineer prioritizes fundamental features in building a strong and reliable structure.