Innovative Insurance Solutions for Resilient MSMEs in Southeast Asia

Micro-, small-, and medium-sized enterprises (MSMEs) drive the majority of economic activities in ASEAN countries. However, these businesses are highly prone to various risks, from financing to climate risks. In a report, the United Nations Development Programme (UNDP) explores innovative insurance solutions for MSMEs resiliency in Thailand and Malaysia.

ASEAN’s Economic Drivers

MSMEs are central to the economic development of ASEAN. Making up almost the entire enterprises established in Malaysia and Thailand, MSMEs drive over one-third of the GDPs in each country. Moreover, they support the livelihoods of millions of people, accounting for 48% and 72% of employment in Malaysia and Thailand, respectively.

Unfortunately, MSMEs are still vulnerable to risks and prone to failure in the face of shocks. For instance, the report notes that between 40.5% and 70% of MSMEs across ASEAN suspended their operations during the COVID-19 pandemic. Lack of access to financing, limited resources and facilities, and growing risks of climate-induced disasters also threaten the longevity and sustainability of these businesses, which can impact the overall economy in the long run.

Those challenges are further compounded by MSMEs’ limited understanding of risk mitigation mechanisms, with less than 5% having any form of insurance. Therefore, innovative insurance solutions become necessary to strengthen MSMEs’ resiliency.

Developing Innovative Insurance Solutions

For insurance providers, MSMEs are considered an untapped market, as indicated by significantly low insurance uptake. However, the lack of data availability and varying unique conditions of MSMEs have become major obstacles to developing and distributing insurance products that match their specific challenges.

To support innovative insurance solutions in Malaysia and Thailand contexts, the UNDP report divided MSMEs in each country into segments based on value chains. This segmentation becomes the crucial first step to understanding the unique challenges and developing tailored solutions.

Overall, this approach indicates both specific and cross-cutting risks exist across value chains, which can be interlinked. For instance, agriculture, manufacturing, and retail are linked; therefore, a disruption in one can impact another. Meanwhile, climate change is considered a widespread risk that can impact MSMEs in all sectors and countries. Insurers must consider all these aspects when developing innovative insurance solutions and tailored products for MSMEs.

To provide holistic risk solutions, the report identified three types of opportunities based on the Malaysia and Thailand contexts:

Bundling different types of insurance to provide businesses with more customized solutions.
Combining risk mitigation tools with risk transfer solutions (insurance), allowing businesses to mitigate and address risk.
Leveraging alternative distribution partners (aggregators) to reach MSMEs more effectively and serve them more efficiently.

Public-Private Collaboration

Ultimately, building MSME resilience in Southeast Asia requires participation from both the public and private sectors. Governments and policymakers must create an enabling environment for MSMEs to thrive, including providing guidance on digitalization, promoting innovation platforms and tools, and monitoring risks.

Meanwhile, insurers must improve their understanding of the multiple aspects of MSMEs to develop new and suitable risk solutions. Enabling coordination and collaboration between key actors is critical in formulating strong and thriving economies in Southeast Asia.

Read the full report here.

Editor: Nazalea Kusuma

Kresentia Madina

Reporter at Green Network Asia | Website | + posts

Madina is the Assistant Manager of Stakeholder Engagement at Green Network Asia. She holds a bachelor’s degree in English Studies from Universitas Indonesia. As part of the GNA In-House Team, she supports the organization's multi-stakeholder engagement across international organizations, governments, businesses, civil society, and grassroots communities through digital publications, events, capacity building, and research.