Disaster Risk Insurance for Micro, Small and Medium Enterprises: Research on Perceptions and Access to Insurance Schemes

Insurance against the risk of natural disasters for micro, small, and medium enterprises is essential in the context of climate change and natural disasters that are more and more frequent in the country.

For this reason, in the period October-December 2023, the “Economic Recovery and Resilience” project team collaborated with the “Albania Project Center” and a team of students from the Worcester Polytechnic Institute in Massachusetts in the United States of America to conduct a study in this field.

In the framework of this study, the student team conducted in-depth interviews with 71 micro and small businesses in Tirana, Durres, and Lezhë, as well as with representatives of institutions and insurance companies in the country, to explore the level of knowledge and readiness of businesses small for insurance against natural disasters.

Although the findings of the study should be treated as indicative, considering the sample size and sampling technique, they can still serve as “checking the pulse” to shed light on businesses’ perceptions of access to insurance schemes.

The student team recently presented their findings providing a comprehensive overview of the complex landscape in the field.

The study identified a significant gap in disaster protection, highlighting the imperative need for financial education and awareness in this regard for micro, small and medium enterprises.

Of the 71 businesses interviewed in total, 68% of them reported that they had experienced damage from natural disasters, but only 4% of them had chosen to insure against them, highlighting the obvious gap in this regard.

The study highlighted the critical role of knowledge and awareness in accessing insurance schemes. It was observed that 40% of business owners were not aware of such schemes. Additionally, business owners often associate insurance only with the structure of the buildings in which they operate, not knowing the specific coverages offered for lost income or damage to merchandise and machinery.

Apart from the essential role of lack of financial education and awareness, the study identified three other major factors for MSMEs’ lack of participation in disaster insurance schemes: i) perception of low risk of natural disasters in the future (56% think that the risk posed by natural disasters in the future is low); ii) the existence of alternative mechanisms for support in cases such as the community and family as well as iii) the low level of trust in schemes and insurance companies in general (58% of the interviewees say that they do not trust companies and schemes of insurance).

However, it should be noted that businesses affected by natural disasters in recent years, such as earthquakes or floods, are more aware of the growing risk and more willing to be involved in such schemes.

The findings of the study highlighted the need for the design of strategies and specific action plans to strengthen the financial resilience of businesses, at a time when climate change is already a reality.