SINGAPORE - Small and medium enterprises (SMEs) in Singapore face rising business risks as they deal with increasing costs amid an economic slowdown.
But AIG Asia Pacific Insurance Pte Ltd (AIG Singapore) forecasts that internal factors such as workplace injury will pose the greatest risk for SMEs over the next 12 months.
AIG Singapore said its claims data shows the top three risks for SMEs are workplace injuries (56 per cent), fire or water damage to property (20 per cent), and legal liability (20 per cent).
SMEs claimed more than S$5 million last year, and AIG Singapore expects the claims volume to stay in this range over the next 12 months, it said in a report on Wednesday (June 29).
The insurer said workplace injury is especially concerning, with claims growing by 17 per cent in 2015 compared to 2014. The amount paid for workplace compensation claims is also forecast to increase by 20 to 30 per cent this year.
Based on AIG Singapore's data, the manufacturing industry saw work-related injuries account for 90 per cent of its top claims over the last three years. The top three industries that submitted SME-related claims are food and beverage, retail, and manufacturing.
Said AIG Singapore's head of SME packages Krishna Moorthi Sri Ramalu: "With growing awareness of external threats such as cyber attacks and data theft, much attention has been placed on how these external risks can cripple SMEs. While these threats are indeed significant and on the rise, SME owners must not forget their assets are exposed to internal risks every day.
"AIG Singapore forecasts that the greatest risks SMEs will face in the next 12 months are due to internal factors such as injury to employees and damage to property and equipment."
He added: "Workplace injury claims accounted for over half of AIG Singapore's claims last year. It is a key risk factor for SMEs that cannot be ignored, particularly with a 10 per cent rise in fatal workplace injuries from 2014 to 2015."
AIG also noted that a fire breaking out on a SME's premises is also a risk that, while not as common, can cause severe and long-term losses that have a huge financial and reputational impact on the business.
Mr Krishna highlighted the example of a fire at a major shopping centre earlier this year, which caused the shopping centre to close for around five days.
This resulted in 13 potential property damage claims, including seven business interruption claims, from AIG's SME clients operating in the mall. The total estimated cost of these claims was S$241,000.
In 2015, the average claim made by an AIG SME client was around S$6,000, while the highest claim was S$214,000 made by a medical clinic when its water pipe burst and damaged both the clinic and neighbouring retail units.
Said Mr Krishna: "SME owners often do not invest in risk management and contingency planning as they are preoccupied with the day-to-day running of their companies. However, it is precisely because of their smaller scale that SMEs can ill-afford hefty losses caused by business interruptions or closures, loss of income, supply chain delays or damage to neighbouring properties.