Experts Advise MSMEs to Prioritize Insurance Over Investment for Safety

By LOVETH AZODO, Lagos

Experts have urged business owners to avoid relying solely on investments as a safety net and should instead embrace insurance policies. 

They underlined that acquiring insurance coverage is not only a wise financial move but also a crucial qualification for accessing funding through microfinance or lending platforms. For these specialists, financial inclusion encompasses more than just having a bank account—it necessitates integrating insurance into one’s financial strategy.

During a webinar event hosted by Coronation Insurance PLC, themed “Shared Prosperity through Financial Inclusion: Protecting Your Business and Wallet Using Insurance,” the CEO of Coronation Insurance, Olamide Olajolo, clarified that insurance operates on the principle of a law of large numbers. He cautioned against the reckless choice of using savings to replace insurance, highlighting that insurance is a more cost-effective and secure safety net. Olajolo illustrated that, for instance, an individual could use ₦250,000 to cover a business or property valued at ₦10 million.

Addressing the importance of financial literacy for MSMEs, he stressed that informed decision-making is critical in avoiding bankruptcy during emergencies.

Regarding the frequent issue of unpaid insurance claims, Olajolo explained that insurance companies settle valid claims exclusively. He noted that loss adjusters are responsible for investigating to confirm whether an accident was intentional or not. If it is found to be intentional, the claim is deemed fraudulent, and the insurance company will not honor it.

The keynote speaker, Mr. Adedeji Olowe, Founder/CEO of Lendsqr, emphasized that investments alone would not suffice to cover the full cost of losses during emergencies. He pointed out that 100% of financially excluded individuals lack insurance, even when they have bank accounts, leaving them without access to necessary financial services during times of need. 

Olowe made it clear that relying on investments to replace insurance is a high-risk strategy. The question he posed was whether individuals have invested enough to mitigate potential risks. Olowe drew an analogy by comparing running a business without adequate insurance to driving a car without a seatbelt. He highlighted that many businesses struggle to survive when unforeseen events occur.

In addition, Olowe highlighted the symbiotic relationship between insurance and lending/credit companies. He explained that to access loans, an entity must have insurance coverage. Insurance, according to Olowe, safeguards the ability to create value, and without it, there is no financial life.

Yemisi Isidi, CEO of Triift Africa, added to the discussion by noting that insurance can enhance access to credit for MSMEs seeking to fund their operations effectively. She stressed that a business owner with insurance coverage is more likely to secure a loan with a lower interest rate compared to one without insurance policies.

Isidi, who primarily deals with sole proprietorships, shared that the company administers loans to individuals with insurance without considering uncertainties or emergencies. She encouraged business owners to opt for insurance instead of simply saving for potential emergencies. 

In summary, the resounding advice from insurance experts is clear: for MSMEs in Nigeria, prioritizing insurance is a prudent and strategic move that can both protect businesses from unforeseen challenges and open doors to more accessible credit opportunities. Financial inclusion, they believe, begins with the protection and stability that insurance can provide.