Small businesses are exposed to a wide range of risks, which they frequently struggle to manage. These risks range from theft of assets to illness of a key worker, or a natural disaster. 

Small businesses struggle more than larger businesses to cope with risks. This is partly a simple matter of resources – small businesses have far fewer resources to cope with and survive the risks they face – but it is also made worse by shortages in skills and tools to manage those risks. 

Risks faced by small businesses can be classified into four major risk classifications commonly used in enterprise risk management systems and defined by the Casualty Actuarial Society (CAS).

 The CAS presents the following framework of risks faced by businesses of all sizes (CAS, 2003; seen in Yusuf et al., 2013): 

Hazard risks Fire and other property damage 

Windstorm and other natural perils 

Theft and other crime 

Personal injury 

Business interruption

 Disease and disability (including work-related injuries and diseases)

 Liability claims 

Financial risks Price (e.g. asset value, interest rate, foreign exchange, commodity) 

Liquidity (e.g. cash flow, call risk, opportunity cost) Credit (e.g. default, downgrade) 

Inflation/purchasing power Hedging/basis risk 

Operational risks Business operations (e.g. human resources, product development, capacity, efficiency, product/service failure, channel management, supply chain management, business cyclicality) 

Empowerment (e.g. leadership, change readiness)

 Information technology (e.g. relevance, availability)

Information/business reporting (e.g. budgeting and planning, accounting, information, pension fund, investment evaluation, taxation) Strategic risks

Reputational damage (e.g. trademark/brand erosion, fraud, unfavorable publicity) 

Competition Customer wants Demographic and social/cultural trends 

Technological innovation 

Capital availability 

Regulatory and political trends

 To delve deeper into the risks faced by small businesses, it is useful to consider the findings from Finscope’s research carried out in five African countries: Malawi (Finscope, 2012a), Mozambique (Finscope, 2012b), South Africa (Financial Sector Deepening Trust, 2012), Tanzania (Finscope, 2012c) and Zimbabwe (Finscope, 2010). 

These nationally representative surveys examine how owners of micro, small, and medium enterprises, as well as individual entrepreneurs, source their income and manage their financial lives. The surveys elucidate which risks are most important to small business owners in the countries surveyed. 


11 Risks to which small business are exposed? Most common risks mentioned across countries Percentage of small business owners South Africa Zimbabwe Malawi Mozambique Tanzania Flood, fire or natural disaster 13 (flood, fire or natural disaster), 6 (rain damage) 46 41 18 (flood, fire or natural disaster), 12 (rain damage) 17 (flood), 47 (fire), 30 (drought) Illness or death of owner 8 (illness), 7 (death) 15 32 14 Theft 18 (theft of stock), 13 (theft of equipment) 15 31 13 (theft of livestock) 66 Accidents 50 Not being paid by creditors 6 19 Damage to place of business 12 Bankruptcy 9 Low selling prices 22 Lack of raw materials 16 This data is limited by the fact that it only covers countries in one region. 

Secondly, the vast majority of small businesses surveyed are micro-enterprises in which the entrepreneur does not employ any further staff (81 per cent in Malawi, 93 per cent in Mozambique, 67 per cent in South Africa, 66 per cent in Tanzania, and 71 per cent in Zimbabwe).

Larger businesses in other countries may have other priorities. Nonetheless, it provides a useful list of risks that are likely to be relevant to small business in many countries. Having identified the substantial range of risks faced by small businesses, the next step is to ask where insurance can play a role in helping better manage these risks. The next section responds to this question.


A range of solutions will be needed to overcome the constraints faced by small businesses: governments can introduce regulation that is more supportive of small businesses, access to credit can be improved, more reliable electricity and internet access can be installed, and business skills training can improve management practices. Efforts to implement such improvements are underway across the world.

 However, despite significant efforts to improve infrastructure, competency, and so on, the risks that small businesses face, such as weather events, health problems, or theft of their stock, are often left largely unaddressed. Insurance cannot address all of those risks, but it can address many of them. This section first explores how insurance can offer financial protection, exploring which risks are insurable and which insurance products are suitable. It then goes on to look at the indirect benefits insurance offers in boosting productivity and facilitating access to credit. 

FINANCIAL PROTECTION Insurance allows businesses to avoid the financial consequences of certain risks. Whereas a sudden and unexpected shock can take an uninsured business over the brink, an insured business is able to handle the shock and continue to operate. 


Many of the risks outlined in the CAS’ framework of risks (introduced in section 2) can be covered by insurance, whereas some fall outside the remit of insurance. 

Insurance works as a risk-management solution for risks that are infrequent and result in large losses. The risks must involve a clear and quantifiable financial loss and must be random, rather than something controlled by the insured person or business. 

Risks related to business operation, such as poor supply chain management or being unable to hire the right staff, are therefore not insurable since they are largely under the control of the business. 

Furthermore, another operational risk, competition, is not insurable, because it is too difficult to quantify and too common – almost all businesses struggle in the face of stronger competition. Nonetheless, a significant number of the risks identified in the framework are indeed insurable. Insurance is most relevant to hazard risks, though it also has a role to play in relation to financial risks.

Insurance is not a solution, on the other hand, to strategic or operational risks 

Curtesy :Impact Insurance, International 

Labour Organisation