Business Interruption (BI) insurance is not popular among the operators/owners of Small and Medium Enterprises (SMEs) in Nigeria. This study is an attempt to investigate causes of SMEs’ failure and to assist the owners on how to use BI to protect both the physical assets as well as future profits of their businesses. Hence, 389 SMEs were purposively selected from four major cities in Niger Delta Region (NDR) in Nigeria for this purpose. The statistical tools used for analysis were Phi and Cramer’s V. The extent of SMEs losses through means of sourcing for materials and strategy employed to transfer such risk to third party were considered in this study. The findings revealed that: SMEs’ losses were strongly related to means of conveying raw materials to business locations; and responsibility assumed by SMEs’ owners to distribute goods to customers without the use of insured vehicles/vans. The study recommended among other things that SMEs’ owners can reduce some business risk exposures by making sure that their goods are carried on insured vehicles/vans, and that they can devise means to make the SMEs’ suppliers responsible for safe delivery of all materials purchased from them.
Business interruption, risk exposures, property and pecuniary insurance
Adeyele, Joshua Solomon; Osemene, Olubunmi Florence; and Olubodun, Idowu Emmanuel
"Property and Pecuniary Risk Exposures: An Investigation into SMEs’ Shutdown and Mitigation Methods in Nigeria,"
The Journal of Entrepreneurial Finance:
2, pp. No business is immune against property damage such as fire outbreak and building collapse in all countries of the world. The chance of any of these perils occurring is even higher in developing countries, particularly in Nigeria due to use of substandard materials by many building contractors who will not see the need to take material warranty insurance that enables the establishment of quality assurance in those structures. For such buildings used for SMEs’ businesses, whenever any of these perils operate, the operators need to reinstate their businesses if there is already set aside funds for that purpose or the perils are insured by insurance companies (Boland, Collins, Dickson, Ransom & Steele, 2004). If neither of these is in place, and there is no other reliable means for reinstatement, the affected SMEs will experience business shutdown. The implication of this to individuals and the society at large is clear. Workers will be laid off and economic wellbeing in the society where the businesses operate will be negatively affected. However, if these events were insured, the insurance companies will only be responsible for the reinstatement costs and employees will still be laid off, and profit to be earned during reinstatement will be lost (Wildman, Garvey, 2008, Wright & McNamara, 2000). This loss of profit and the cost of keeping employees while reinstatement takes place can be avoided through interruption insurance which ensures that the losses during the reinstatement periods are recovered in addition to reinstatement cost (Boland et al, 2004). The basic purpose of business interruption, according to Ransom (2003), is to reimburse those parts of ‘gross profit’ which are lost as a result of the inability of the business to operate after a fire or other insured event occurred. Previously, insurers were reluctant to offer business interruption insurances due to the concerns that during the periods of trading difficulties, there would be a temptation on the part of the insured to delay repairs and make claim from any business interruption insurance (Wildman et al., 2000). Another factor was that the ideas on how to arrange the cover and quantify the claim had not been fully developed. This was because accountancy at that time was still at its infancy, and many businesses were owned and operated by private individuals that made it difficult to separate the owner’s private money and income from those businesses (Wildman et al, 2000). Thus, whenever SMEs’ businesses experienced shutdown occasioned by fire or other insurable events, the employees of such SMEs are laid off until premises are rebuilt and re-equipped. The continued shutdown of business activities of the SMEs has adverse effect on economic development. Many of the past studies carried out on SMEs have been limited to physical risk mitigation methods (Adeyele & Maiturare, 2012; Berger & Udell, 2001, Laforet & Tann, 2006; Reynolds & Lancaster, 2006, Verbano & Venturini 2013). Akinola (2014) as well as Reynolds and Lancaster (2006) examined how SMEs can be-.
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