THE ROLE OF INSURANCE IN MINIMIZING BUSINESS RISK IN SMALL AND MEDIUM SCALE ENTERPRISES

1. Research Questions

The main research question addressed was: do SMEs use insurance to mitigate business risk(s)? The specific related questions to solve the research problem included the following:

1. What were the risk exposures that an SME was faced with?

1. Did entrepreneurs of SMEs have enough insurance for their businesses?

1. What was the level of response to using insurance as a risk management tool?

1. What benefits did SMEs derive from using insurance as a risk management tool?

1. What were the problems that SMEs encounter in using insurance?

1. What were the solutions to overcome the challenges that SMEs encountered in using insurance?

1. Significance/Justification of the Study

The study would help identify the reasons for the level of patronage of insurance as a risk transfer mechanism and create a changed behaviour of the owners of SMEs. The research would benefit, risk managers, business consultants and business continuity consultants by identifying areas that they might need to consider when preparing disaster recovery plans, particularly for SMEs. Findings that emerged from the study would serve as a spring board to generate interest for further research into the other aspects of insurance challenges. The research work would also be of enormous assistance to various levels of educational institutions in the country, especially the universities as reference material for further studies and research work on insurance as a risk management strategy. The study would further contribute to the existing literature on mitigating and providing confidence to entrepreneurs in their investment decisions. Also, the insurance

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regulator in the country should find it useful to adopt pragmatic means to enforce the unenforced insurance Acts in the country. Lastly, it might influence the level of premium incomes of non-life insurance companies in the country.

1. Method of the study

The researcher made use of the survey method to generate primary data to achieve the objectives of the study, (Zikmund, 2000). A multiple stage sampling design was used to draw sample frame to avoid any bias. First, the metropolis was clustered into three electoral constituencies, constituting 19(nineteen) towns (Figure 3.1). A cluster sampling of 4(four) small scale businesses, 5(five) medium scale businesses were taken from each sample elements from the: central, south and north constituencies respectively. Nine (9) business units were clustered from each town. SMEs were divided into different clusters according to the number of employees. A total of 171 registered and non-registered SMEs were sampled and questioned. Different clusters of SMEs had the same number of employees as one sub-cluster. All thirteen insurance companies in the metropolis were

respondents to section "C" of the question were contacted.

Primary data was collected from respondents per the questionnaire. In gathering data, the researcher self-administered 13% of the questionnaire, while 87% of the remaining questionnaires were administered by trained personnel to administer and gather information from the entrepreneurs. The rationale for using this approach was to allow the respondents ample time with monitoring to answer at their own pace without taking them away from their work. The trained personnel read and interpreted questionnaires to non-literate respondents. In answering the questionnaire, the

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respondents were asked to indicate their responses to the questions on a five point Likert scale, ranging from 1 (strongly disagree) to 5 (strongly agree),  (Likert, 1932). Also closed and opened ended response questions were analysed.

The researcher made use of qualitative and quantitative survey design for this study. The design involved the collection of data concerning the study. Frequency tables and percentages (%), figures and cross tabulation were used in analyzing the data with the aid of Statistical Package for the Social Sciences (SPSS).

1. Scope and Limitation of the Study

The study covered the use of insurance as a risk management tool by SMEs, evidence and

prospects in the metropolis. Four categories of insurance protection were classified for any businesses: property, liability, people and income (Dorfman, 2008). These categories remained the focal points of reference in the research. Indemnification and risk pooling of the various categories of insurable risks enhance commercial transactions and the provision of credits by reducing losses. The research took a period of five months.

Uyo Metropolis was one of the 20 administrative districts in the region of the area of study. It is the central business district and the capital of the northern region. The Metropolis shares boundaries with Savelugu-Nantong to the North West, Yendi to the East and Gonja to the South.

The Uyo metropolis is the political, economical and financial capital of the region. The major government departments, NGOs and ministries have Uyo as the operational centre