Asia Small Businesses: Data shows rising PDBI losses, what is the solution?

Small businesses in Asia face growing challenges from escalating property damage and business interruption losses.

Across Asia-Pacific, small and medium enterprises (small businesses) make up over 97% of all businesses and are a key driver of economic growth. However, small businesses are also highly vulnerable to extreme weather and climate change, geopolitical conflict, supply chain, and other business interruption (BI) risks.

For instance, Typhoon Doksuri caused overall losses of US$25 billion across China, Vietnam, and the Philippines in 2023, of which only US$2 billion was insured.¹ With only 15% out of more than 71 million micro, small and medium enterprises (MSMEs) insured against natural disasters in Southeast Asia despite an increase in natural catastrophes in the region,² only a handful of business have the ability to recover from a major risk event. Indonesia has one of the biggest protection gaps, with only 3% out of 64 million MSMEs equipped with natural disaster insurance,³ even though adequate coverage can be obtained relatively affordably with the benefits far outweighing the cost.

Even in areas with low incidence of natural disasters, the interconnectedness of supply chains means that extreme weather and geopolitical risk can also cause severe business interruption. In Singapore, only 22% of small businesses have BI insurance coverage, despite 77% expressing concerns about business interruption.⁴ This means a large percentage of businesses have had to bear the losses from incidents such as recent supply chain disruptions and delays in major shipping lanes (e.g. Red Sea due to geopolitical conflict and Panama Canal due to drought).

Data shows rising PDBI claims trend; small businesses need to know their risk exposures and optimal level of coverage.

Total number of PDBI Claims by small businesses/growing enterprises in Asia

The latest Property Damage and Business Interruption (PDBI) claims data from Marsh Asia further justifies the need for Asia’s small businesses to obtain adequate protection against business interruption: In the span of just one year from 2022 to 2023, the number of PDBI claims in Asia has increased by 18%. The five industries in Asia with the highest number of PDBI claims in 2023 are: Real Estate (highest), Food and Beverage (2nd), Financial Institutions (3rd), Retail and Wholesale (4th), and Education (5th).

Regardless of sector, each business has unique dependencies, operating models, and characteristics — such as geographical location — that can put it at greater risk of property damage and business interruption losses compared to their peers. For example, food manufacturers with production facilities might have a greater financial exposure to extreme weather damage compared to restaurants. Identifying and quantifying these exposures is crucial to obtaining the right level of PDBI insurance.

5 key considerations to safeguard against business interruption

In Asia, many small businesses are still unaware of how PDBI insurance can help them absorb the large impact of a financial loss from physical asset damage and the loss of income due to operational disruption. Some business owners might also have the impression that PDBI insurance is too complicated and expensive — this is a common misconception as premiums and coverage are dependent on the unique risk profiles of each business.

To ensure small businesses can obtain right-sized and cost-effective PDBI insurance, Marsh Asia has been helping businesses assess their risk exposures and calibrate coverage to suit their risk profiles and budgets, as well as avoid risks blind spots and common insurance pitfalls. Here are five key considerations:

1. Policy limits

Key question to answer: Is the maximum amount the insurer will pay in the event of a claim sufficient to cover your losses?
How we can help: For assets exposed to natural catastrophe/climate risks where insurance capacity might be constrained, Marsh Asia can also help businesses obtain sufficient coverage.

2. Business interruption (BI) declared values

Key question to answer: Are your BI declared values up-to-date and accurate amid inflation?
How we can help: Inflation can change the total value-at-risk of an asset, which means that a fully insured asset at the start of the policy period can become only partially insured after a period of time, and hence subject to the Average Clause. Marsh Asia has a robust process in place to help businesses review their declared values to determine the appropriate premium and policy limits at renewal and avoid under- or over-insurance.

3. Maximum indemnity period

Key question to answer: Is the maximum indemnity period (e.g. 12 months) adequate for your business to fully recover from the loss event?
How we can help: Most PDBI policies specify a maximum indemnity period of up to 12 months. Marsh Asia assesses the indemnity period your business would require in a loss scenario and seeks to incorporate the appropriate indemnity duration into your policy.

4. Exclusions and limitations

Key question to answer: Have you carefully reviewed the exclusions and limitations in the proposed policy to understand what is not covered?
How we can help: Where exclusions apply, Marsh Asia can help to broaden your current coverage. For risks that are not insurable, Marsh can help you to develop and implement strategies to mitigate those risks effectively.

5. Deductible (i.e. the amount of loss you are responsible for)

Key question to answer: Considering your risk tolerance and financial capacity, what deductible structure should you choose?
How we can help: With our experience in working with small businesses in the region, Marsh Asia can recommend the right deductible amount and structure to ensure adequate and cost-effective coverage.

In the event of a claim, your business also needs robust claims assistance to facilitate communication with the insurer and ensure a smooth and fair claims process. Marsh Asia can help support your business and enable you to operate and grow with confidence amid a complex risk landscape.

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