SMEs Insurance-Title

Starting and running a business may be challenging in these tough years, but at the same time is rewarding. The world is full of SMEs ( Small and Medium Enterprises) and is one of the heaviest contributors to economic growth. In a city such as Hong Kong, there are over 340,000 SMEs. They make up more than 98% of Hong Kong businesses and employ about 45% of the city’s workforce. Additionally, according to the World Bank, 90% of companies worldwide are SMEs. Such statistics prove that companies don’t need to be enormous brands to impact the world or their city.

Each SME business wants to keep growing its business over time and reach different targets. However, along the journey to success and development, SMEs may face various risks

 These risks faced by SMEs can range from lawsuits due to the public, shareholders, employees or even unexpected cyber-attacks. Despite the business size or location, every company should be covered from these risks and the future.

The best possible way SMEs can avoid or reduce the impact of these risks is with the right SME insurance(s). There is a range of insurances that an SME must have to assist their path to success. This article will explain which insurances are crucial and why.

Most Important Insurance Needed By SMEs

Professional Indemnity (PI) Insurance 

A range of SMEs provide essential services in the market, such as financial advice, health coaching, personal training, architecture designs, and many more. These professionals are liable to provide the best accurate advice to their customers or clients. However, even the most experienced professional may make mistakes. Unfortunately, clients may not understand if the error/negligence resulted in financial loss, injury or property damage. Clients will have the right to sue the business claiming the professional negligence caused them. 

sme hk - Professional Liability insurance

For example, an engineer may provide a service to install all electrical components in a new house. A client may believe the lights and wiring are faulty due to their negligence resulting in the client spending more to fix the error. The client could sue the professional and the business for reimbursement and compensation costs,

In such situations, professional indemnity insurance plays a large part in protecting the SME. The insurance will cover legal and client compensation costs to help the business. PI insurance is the best cover for all SMEs providing advice or services and will protect them from lawsuits due to negligence. No one is perfect; mistakes will happen- PI insurance will reduce the impact of the error to help the business focus on its future targets.

Commercial General Liability (CGL) Insurance

Every business deals with customers, clients and members of the public, known as third parties. The business is responsible for the safety of all third parties. There are always possible risks that a third party may be injured in your shop or by your product. These risks include third-party injuries or property damage caused due to the business. The company will have to pay for the outcome of these risks, which could result in a lawsuit.

Public Liability- office insurance

For example, if a customer trips on a loose cable in your shop and is injured. Another example is if a product component explodes and causes property damage. The third-party in result may sue the business for injury or damage. The company, in both cases, will have to pay for the injury and property damage costs.

The SMEs’ best solution in these situations is having commercial general liability (CGL) insurance. CGL insurance consists of public liability and product liability cover for the business. The insurance will cover any injuries or property damage caused to a third party due to the business activities or product. It is crucial to be protected by insurance against most third-party risks that can occur at any point.

Director and Officer (D&O) Insurance

As SMEs grow, their duties and responsibility increase. At these points, CEOs need more managers and heads of departments. The management staff and directors have a duty to the business and the board of directors. These duties include providing the best work for the company’s benefit and performing what is expected. Managers, CEO, HR and directors fall under directors and officers (D&O). When a regulator, board of directors or employee believes that a member of the management is breaking their duty to the company, they can sue the business for the breach of duty.

SME Director & officer Insurance- office package insurance

For instance, an investor may sue a director or officer for failing to disclose material facts and providing inaccurate and misleading information to the investors. It is the SME’s duty to protect their directors and managers from such claims as, at times, it can be just a mistake.

There are many more D&O claims that could affect the business. Damaging claims are why SMEs need to purchase D&O insurance to protect their management team and the company. The insurance will provide legal costs (including lawyer fees) and settlement expenses. The insurance helps the accused a fair chance to defend themselves and protect the business’s reputation. In such cases, the SMEs should do their best to protect themselves without worrying about expenses.

Employee Compensation Insurance

Happy employees result in productive work and a successful business. For SMEs to grow and reach this success, they need the best employees. Therefore, employee safety in the company should be one of the principal duties of the SME employer. During a tragic event of an employee being injured or contracting an illness– the employer will be liable and must pay for medical expenses and provide a fair salary during recovery. Therefore, work injuries can cost a business a large amount and may affect its path to success. 

Startup Insurance-SME employee - group health insuranceAll employers want to help their employees in these challenging situations without worrying about the cost- this is why they should purchase employee compensation insurance. The insurance will cover the medical, compensation, and salary costs post-accident. Unfortunately, No matter if an employee is working in the office or a factory, there is a chance of a work injury or illness. The employer can provide them with the best coverage without worrying about the cost related to the injury.

Thankfully in many cities, like Hong Kong, employee compensation insurance is mandatory. For example, a chef may suffer a severe injury while working for an SME restaurant. The employee compensation insurance reimbursed the business for the medical, salary and compensation costs they had provided the employees.

Cyber Insurance 

Technology has changed the business industry for good and allows SMEs to grow faster in their target locations. Although, there are a growing amount of cyber risks and cyber-attacks that can critically harm a business and its data. Cyber-related risks should be taken very seriously.

Startup Insurance-SME cyber threats

In fact, 2021 was one of the worst years for cyber security. According to Check Point Research, cyberattacks increased 50% year-over-year, with each industry facing 925 cyberattacks per week globally. Moreover, each attack and breach costs a business a significant amount financially and may affect client relationships too.

Businesses cannot avoid some cyber-attacks, but cyber insurance can severely reduce the impact. Cyber insurance will help companies fight the attack and recover from it stronger. The insurance will cover extortion, data breach, third-party informative and first-party response costs (any costs related to the type of cyber-attack). It is one of the most critical forms of insurance that should be purchased when working online as an SME.

 The Benefits SMEs Gain from Having Insurance

Insurance in any industry is critical; the right insurance can save the company in various ways. Every time insurance does its magic after an awful situation, the founders feel grateful that they made the smart step of being insured beforehand.

An SME can suffer from huge financial losses without insurance. The right combination of insurance covers these losses and reimburses expenses. SMEs are hard enough to run and grow. Insurance allows a business to face the situation the right way and focus on future targets.

Another benefit is the quick response SMEs will receive from the insurance company. Quick response and advice can reduce the impact of the lawsuit or cyber-attack. In addition, fast actions can save the company money and settle the case more efficiently.

Finally, a crucial advantage is that insurance can help protect the SME’s reputation and help the company recover for the future. Reputation damage after a lawsuit can ruin a business, even if the company was not at wrong. Insurance will assist the SME to protect and rebuild the brand image.

As you can tell, numerous risks can affect SMEs, and insurance is the perfect safety net to protect the business and focus on a better tomorrow.


To Learn More about different SMEs Insurances and get the best protection for your business in Hong Kong and Asia, contact Red Asia Insurance.