The Role Of Insurance In Minimizing Business Risk In Small And Medium Scale Enterprises
Chapter One
Preface
Background to the Study
Life is full of pitfalls; anticipated or unanticipated. In recent times there have been a lot of disasters and misgivings affecting particular lives and the business terrain across the globe. These events have had adverse goods on the socioeconomic conditioning on developed and developing nations; particularly Nigeria. There have been violent cataracts, fire outbreaks, business accidents, occupational hazards, accidental damage to parcels and detriment caused to lives, theft and fortified thievery, as well as other unlooked-for events that impact negatively on colorful profitable gambles; especially the private sector investment conditioning. These mishaps remind us of the need to borrow threat operation measures. threat is far and wide but the business world is important exposed to it. To overcome the losses arising from these pitfalls some take up insurance, others do not.
Aizenman and Marion( 1999), punctuate the adverse goods of pitfalls on investment using macroeconomic data from further than forty( 40) developing countries. They emphasized the fact that the query about business opinions in the future and the performing earnings can not be auspicious.
Despite sweats by consecutive governments through profitable reforms to heighten the private sector to round government’sinvestments and enhance profitable growth, the
sector’s response is fairly low; and thi
Entrepreneurs make opinions regarding their investment in a dynamic and parlous terrain.
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The issues of their opinions are generally not conclusive due to the misgivings associated with the unborn issues. Variability in unborn issues is the biggest source of threat, particularly among Small, and Medium Scale Enterprises( SMEs). The use of insurance as a threat mitigation tool provides confidence and prospects in successful business opinions, still to some degree.
The introductory function of insurance is threat transference; threat is transferred from one party( the insured) to another party( the insurer). The transfer of threat by no means eliminates the possibility of mischance, but the insurer provides fiscal security and tranquillity for the ensured when the ensured threat occurs. In return, an insured pays a decoration in a veritably small quantum when compared with the implicit losses that may be suffered( Morton, 1999).
Insurance as a threat operation tool in Nigeria is made expansive and obligatory by the Insurance Act, 2006( Act 724). The Act makes it mandatory for private marketable property possessors similar as hospices, caffs , hospitals and conventions, bus shops, manufacturing enterprises and numerous other affiliated businesses to gain fire and liability insurance just as it’s mandatory for vehicle possessors to gain the Third Party Motor Insurance cover under the mandatory third party
motor insurance Act 1958( Act 42). Sections 1 not construct or beget to be constructed a marketable structure without assuring with a registered
insurer the liability in respect of construction pitfalls caused by negligence or the negligence of retainers, agents or advisers which may affect in fleshly injury or loss of life to or damage to property of any workman on the point or of any member of the public; every marketable structure shall be ensured with an insurer against the hazards of collapse, fire, earthquake, storm and flood tide, and an insurance policy issued for it; the insurance policy shall cover the legal arrears of an
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proprietor or occupier of demesne in respect of loss of or damage to property, fleshly injury or death suffered by any stoner of the demesne andical thir satisfaction and fiscal juices to investors buying insurance to guard business interests.
The compliance of the Act( Act 724) is in mistrustfulness as the 2007, ENGAS company filling station gas explosion at Asokwa in Ashanti Region didn’t fulfil its obligation per the law; the 2011 fire explosions at the Western Steel and Forging Ltd in Tema caused injury, death and damages to people and parcels; also, the destruction of parcels at Kantamanto Market and the VRA computer room( casing its garçon) by fire substantiation the need for insurance covers to minimize the goods of hazards to SMEs, Government Agencies and Departments; hence, the call on government with other stakeholders to help victims.
Problem Statement
Risk is one of the most overlooked areas in SMEs in malignancy of the fact that it’s clear to
most entrepreneurs that, operating any business involves threat similar as losses associated with property, income, injury and liability. These pitfalls are ineluctable to utmost entrepreneurs in businesses. Prudent business possessors take way to minimize the threat of their businesses in other to maximize returns on investments. A good threat operation system is a nonstop process of analysis and communication to elect the applicable tool to manage threat.
SMEs in Nigeria serve as vital reflective sources of growth, technological invention and inflexibility. still, they’re ladened with towards growth and development strategies. SMEs are exposed to numerous pitfalls in their ordinary
course of business, similar as interest rate threat, foreign exchange threat, request threat, natural disasters, political threat, and technological threat and so on, that minimize their profit by adding their
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fiscal losses. still, insurance elevated in sections 183 and 184 of the Insurance Act, 2006( Act724) to serve as a buffer in the event of mishaps isn’t given the attention it deserves anyhow of its significance to alleviate the goods of pitfalls performing from disasters or unanticipated events. In Uyo, the position of patronage of insurance by SMEs as a threat transfer medium to alleviate pitfalls similar as collapse of structure, fire outbreaks, accidents, burglary, business interruptions, and deceitfulness of labor force tend to be crimpy. What were the recovery measures in the wake of the implicit losses and fiscal rigors?
In view of this, the experimenter examined the extent to whichnon-life insurance was used as a threat operation tool by SMEs.
Objects of the Study
The exploration astronomically sought to assess the extent to which SMEs borrow insurance as a threat operation and minimizing tool and the benefits there in. Specifically, the exploration intended to achieve the following objects to
Identify what business threat( s) SMEs face;
Examine the response of SMEs towards the use ofnon-life insurance to alleviate pure threat( s);
Assess the benefits SMEs decide from using insurance as a threat operation tool;
Identify any problems SMEs encounter in using insurance; and
Find out results to the challenges that SMEs encounter in using insurance.
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Exploration Questions
The main exploration question addressed was do SMEs use insurance to alleviate business threat( s)? The specific affiliated questions to break the exploration problem included the following
What were the threat exposures that an SME was faced with?
Did entrepreneurs of SMEs have enough insurance for their businesses?
What was the position of response to using insurance as a threat operation tool?
What benefits did SMEs decide from using insurance as a threat operation tool?
What were the problems that SMEs encounter in using insurance?
What were the results to overcome the challenges that SMEs encountered in using insurance?
Significance/ defense of the Study
The study would help identify the reasons for the position of patronage of insurance as a threat transfer medium and produce a changed geste of the possessors of SMEs. The exploration would profit, threat directors, business advisers and business durability advisers by relating areas that they might need to consider when preparing disaster recovery plans, particularly for SMEs. Findings that surfaced from the study would serve as a spring board to induce interest for farther exploration into the other aspects of insurance challenges. The exploration work would also be of enormous backing to colorful situations of educational institutions in the country, especially the universities as reference material for farther studies and exploration work on insurance as a threat operation strategy. The study would further contribute to the being literature on mitigating and furnishing confidence to entrepreneurs in their investment opinions. Also, the insurance
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controller in the country should find it useful to borrow realistic means to apply the unenforced insurance Acts in the country. Incipiently, it might impact the position of decoration inflows ofnon-life insurance companies in the country.
System Of The Study
The experimenter made use of the check system to induce primary data to achieve the objects of the study,( Zikmund, 2000). A multiple stage slice design was used to draw sample frame to avoid any bias. First, the megalopolis was clustered into three electoral constituencies, constituting 19( nineteen) municipalities( Figure3.1). A cluster slice of 4( four) small scale businesses, 5( five) medium scale businesses were taken from each sample rudiments from the central, south and north constituencies independently. Nine( 9) business units were clustered from each city. SMEs were divided into different clusters according to the number of workers. A aggregate of 171 registered andnon-registered SMEs were tried and questioned. Different clusters of SMEs had the same number of workers as onesub-cluster. All thirteen insurance companies in the megalopolis were
repliers to section “ C ” of the question were communicated .
Primary data was collected from repliers per the questionnaire. In gathering data, the experimenter tone- administered 13 of the questionnaire, while 87 of the remaining questionnaires were administered by trained labor force to administer and gather information from the entrepreneurs. The explanation for using this approach was to allow the repliers ample time with monitoring to answer at their own pace without taking them down from their work. The trained labor force read and interpreted questionnaires to uninstructed repliers. In answering the questionnaire, the
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repliers were asked to indicate their responses to the questions on a five point Likert scale, ranging from 1( explosively differ) to 5( explosively agree),( Likert, 1932). Also unrestricted and opened concluded response questions were analysed.
The experimenter made use of qualitative and quantitative check design for this study. The design involved the collection of data concerning the study. frequence tables and probabilities(), numbers and cross tabulation were used in assaying the data with the aid of Statistical Package for the Social lores( SPSS).
Compass and Limitation of the Study
The study covered the use of insurance as a threat operation tool by SMEs, substantiation and
prospects in the megalopolis. Four orders of insurance protection were classified for any businesses property, liability, people and income( Dorfman, 2008). These orders remained the focal points of reference in the exploration. remuneration and threat pooling of the colorful orders of insurable pitfalls enhance marketable deals and the provision of credits by reducing losses. The exploration took a period of five months.
Uyo Metropolis was one of the 20 executive sections in the region of the area of study. It’s the central business quarter and the capital of the northern region. The Metropolis shares boundaries with Savelugu- Nantong to the North West, Yendi to the East and Gonja to the South.
The Uyo megalopolis is the political, provident and fiscal capital of the region. The major government departments, NGOs and ministries have Uyo as the functional centre.
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