Small company owners and workers should avoid making public statements or doing activities seen as dubious. These activities include libelous or possibly defamatory remarks, as well as conducting business with dishonest people. Employing people renowned for unethical business activities may not seem troublesome to SMEs since they believe its ethics are unquestionable. Still, unless they are revealed, the company’s name may be connected to them. As illustrated below, the above practices can help protect the business from tort and/or contrary liability with insurance.
Insurance in SMEs
Regulation frequently ignores MSMEs, who are caught between people and corporations. Recently, specific laws have been created to enhance low-income people’s access to insurance, but nothing has been done for MSMEs. These court cases may be because MSME insurance is frequently seen as standard. It is a must for most companies to carry either general liability or workers (Akinradewo et al., 2019). In the case of a lawsuit, business owners must safeguard their businesses and personal assets. Companies should be better prepared to avoid or face legal action with these five steps under their belts.
General Liability Insurance
Common business hazards covered include customer harm, damage to property, and advertising injury. It helps SMEs apply for contracts and leases and protects them from costly litigation. Lawsuits filed by third parties may be covered by general liability insurance. Home companies, contractors, and small enterprises are often protected by general liability insurance. Obtaining certification of general liability insurance from a traditional insurance agency may take weeks. This deficit may be a problem for a company owner who must sign a contract immediately (Asai, 2019). If a company’s risks or revenue are significant, commercial umbrella insurance is added.
Insurance Against Professional Liability
Professional liability insurance protects small companies against customer lawsuits in the cases that a legal disagreement occurs. Professional liability insurance is intended for experts in the SMEs who render skilled labour to the clients. Even the most experienced and careful professional service providers make mistakes and clients may be less forgiving if a mistake costs them time or money. Unmet project deadlines, errors in production, or poor business advice may lead to client lawsuits (Amoah & Mungai, 2020). Professional liability coverage will pay legal defiance expenses up to the policy maximum if SMEs are sued in this way. Professional indemnity insurance protects businesses against client lawsuits that may arise in the course of operation.
Compensation for Employees
Employers must have a workers’ compensation policy in position as soon as they recruit their first employee. This insurance protects against medical bills and litigation resulting from occupational injuries, even if not needed by law. Workers’ compensation may help SMEs or employees get medical treatment or time off if they are hurt on the job or if an employee is injured for negligence. SMEs are liable for medical and legal costs in cases that their employees are hurt in the line of duty (Akinradewo et al., 2019). These policies are available to self-employed company owners who need to meet contractual obligations or safeguard their revenue. Most health plans do not cover job injuries and illnesses. When SMEs are hurt on the job, their medical expenses are paid if they have workers’ compensation. Workers’ compensation may also partly replace lost earnings due to a work-related injury.
Supporting MSME growth is critical to job creation, and economic prosperity and business should be protected from tort and/or contractual liability. Thus, closing the credit deficit and increasing access to financing for MSMEs is critical. In addition to improving MSME risk management systems, efforts addressing executable security and credit risk assessment are crucial. Experts in risk management, such as insurers, can correctly evaluate effective mitigation systems and assist in effectively price credit risk.
Akinradewo, O., Aigbavboa, C., & Ngwenya, L. (2019). Overcoming the challenges encountered by construction industry SMEs in using insurance. IOP Conference Series: Materials Science and Engineering, 640, 012027.
Amoah, C., & Mungai, J. (2020). Financial literacy training and micro insurance on the financial performance of SMEs in the Sekondi-Takoradi Metropolis, Ghana. International Journal of Research in Business and Social Science (2147- 4478), 9(7), 247-256.
Asai, Y. (2019). Why do small and medium enterprises (SMEs) demand property liability insurance? Journal Of Banking & Finance, 106, 298-304.