Across Asia-Pacific, small and medium enterprises (SMEs) make up over 97% of all businesses and are a key driver of economic growth. However, SMEs are also highly vulnerable to extreme weather and climate change, geopolitical conflict, supply chain, and other business interruption (BI) risks.
For instance, Typhoon Doksuri caused overall losses of US$25 billion across China, Vietnam, and the Philippines in 2023, of which only US$2 billion was insured.[1] With only 15% out of more than 71 million micro, small and medium enterprises (MSMEs) insured against natural disasters in Southeast Asia despite an increase in natural catastrophes in the region,[2] only a handful of business have the ability to recover from a major risk event. Indonesia has one of the biggest protection gaps, with only 3% out of 64 million MSMEs equipped with natural disaster insurance,[2] even though adequate coverage can be obtained relatively affordably with the benefits far outweighing the cost.
Even in areas with low incidence of natural disasters, the interconnectedness of supply chains means that extreme weather and geopolitical risk can also cause severe business interruption. In Singapore, only 22% of SMEs have BI insurance coverage, despite 77% expressing concerns about business interruption.[3] This means a large percentage of businesses have had to bear the losses from incidents such as recent supply chain disruptions and delays in major shipping lanes (e.g. Red Sea due to geopolitical conflict and Panama Canal due to drought).
Total number of PDBI Claims by SMEs/growing enterprises in Asia
The latest Property Damage and Business Interruption (PDBI) claims data from Marsh Asia further justifies the need for Asia’s SMEs to obtain adequate protection against business interruption: In the span of just one year from 2022 to 2023, the number of PDBI claims in Asia has increased by 18%. The five industries in Asia with the highest number of PDBI claims in 2023 are: Real Estate (highest), Food and Beverage (2nd), Financial Institutions (3rd), Retail and Wholesale (4th), and Education (5th).
Regardless of sector, each business has unique dependencies, operating models, and characteristics — such as geographical location — that can put it at greater risk of property damage and business interruption losses compared to their peers. For example, food manufacturers with production facilities might have a greater financial exposure to extreme weather damage compared to restaurants. Identifying and quantifying these exposures is crucial to obtaining the right level of PDBI insurance.
In Asia, many SMEs are still unaware of how PDBI insurance can help them absorb the large impact of a financial loss from physical asset damage and the loss of income due to operational disruption. Some business owners might also have the impression that PDBI insurance is too complicated and expensive — this is a common misconception as premiums and coverage are dependent on the unique risk profiles of each business.
To ensure SMEs can obtain right-sized and cost-effective PDBI insurance, Marsh Asia has been helping businesses assess their risk exposures and calibrate coverage to suit their risk profiles and budgets, as well as avoid risks blind spots and common insurance pitfalls. Here are five key considerations:
1. Policy limits
2. Business interruption (BI) declared values
3. Maximum indemnity period
4. Exclusions and limitations
5. Deductible (i.e. the amount of loss you are responsible for)
In the event of a claim, your business also needs robust claims assistance to facilitate communication with the insurer and ensure a smooth and fair claims process. Marsh Asia can help support your business and enable you to operate and grow with confidence amid a complex risk landscape.
[1] Business Times (2023), Natural disasters in Asia-Pacific, Africa cause US$64 billion in losses in 2023: Munich Re.
[2] Jakarta Post (2023), Protecting small businesses: The case for closing the protection gap for natural disasters.
[3] Insurance Asia (2023), S’pore SMEs fear BI but don’t own insurance for it.
