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Frederico Casal-Ribeiro Global Business Developer MDS Portugal

The importance of SME risk management

SMEs are major drivers of the Portuguese economy. They represent over 70% of our business sector, account for 80% of total employment by non-financial companies and contribute almost two thirds of our Gross Domestic Product. They operate in four main sectors: services, industry, trade and construction. 

Over the past 20 years, our economy has evolved and embraced external trading. As a result, exports are fundamental to our GDP growth. In 2016, exports accounted for 1.2% of GDP growth volume (79.6%). In comparison, domestic businesses was responsible for only 0.3% (20.4%) growth. 

SMEs are increasingly playing a significant role in our export growth. In a study prepared by Iberinform/Crédito y Caución titled "Economia Portuguesa: duas décadas de transformação” (Portuguese Economy: two decades of transformation), it highlights  in 2015 micro-companies accounted for ‘almost 87% of the total national exporting companies, when two decades ago they accounted for less than 37%’. It is not surprising therefore, to find  Portugal is the European country that most invests in the development of SMEs; a fifth of Portugal 2020 funds  - 4.6 billion – is being invested in micro, small and medium companies  to make them more competitive.

Since 2015, SMEs are responsible for 99% of applications for Portugal’s new corporate 2020 incentive system and are receiving 75% of the investment. 

A study carried out by Mazars Consulting identifies six key factors that will help SMEs  reach superior levels of performance: keeping  focused on  markets (being attentive to change); creating added value (importance of technology); creating resilience and operating within financial disciplines; properly resourcing the organization; expanding international horizons and the geographical presence; managing today to lead tomorrow. 
For efficient management, a key element to highlight is risk management. In our view, a comprehensive risk management strategy should include a careful analysis of each organization, taking into account the risks inherent to its activity and  the company,  and identifying  appropriate risk retention levels and ways to mitigate and transfer them (both contractually via third parties and by sourcing  suitable insurance solutions for the most pressing risks).

Traditionally, SMEs subscribe to compulsory workers compensation insurance, auto Insurance and liability cover (for specific activities). As they worry about the safety of their assets, they also have property insurance (mainly multi-hazard which includes fire cover). 

There is a lower awareness of other liability Insurances; their corporate rationale is to protect their own assets with less concern for damages caused to third parties (even those this may represent a larger risk with severe consequences).

Employee benefits, which include health, life and savings/investment insurance are an efficient management tool to ensure staff retention and while they should be a company’s top social priority, they do not always receive their deserved attention.

The  awareness of ‘new risks’ such as cyber, Environmental Liability, Directors & Officers and Key Person( insurance that  compensates the company for damages suffered as a result of the death or disability  of a top executive ) is likewise greatly limited.

In this current climate it’s crucial SMEs embrace risk management; exposure to risk is not governed by a company’s size and is not only a reality for large companies.  While there are some risks large organizations can withstand due to their size (self-insurance), this would be impossible for SMEs.

A large incident that results in a set of lawsuits stemming from third-party liability, a cyber attack leading to loss of personal or confidential customer information, the theft of industrial property or even the loss of a key individual following an accident could all have overwhelming consequences for a SME if these risks are not properly managed.
Some risks are not transferable to the insurance market and in these cases, it’s even more vital to prevent to mitigate them. 

In our market, there are increasingly more solutions for SMEs to protect against traditional and new risks, with prices tailored to specific businesses and their risk exposure. In recognition that all businesses are exposed to risk – no matter their size - insurers have tailored their products to meet the needs of small and medium-sized businesses.

MDS Group with over 100,000 corporate customers in Portugal, has been at the forefront in creating SME solutions; we’ve created comprehensive cover that can be adapted to any business, identified and analysed critical risks and sourced solutions to prevent, mitigate and transfer them. We also continuously monitor and manage the risks of businesses and their companies.

Business leaders, entrepreneurs and senior managers must view risk management as an essential component of their overall business management; purchasing insurance should not be seen as a ‘necessary evil’ or the mere fulfilment of a legal obligation. It is an integral part of their planning and sustained long-term growth strategy.

Published in Vida Económica

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