Cedric Stephens Risk management information pertinent to MSMEs
Some micro, small, and medium-sized enterprises, or MSMEs, face challenges in complying with the recently announced increase in the minimum wage. One operator called for more public education – by the Government or The Small Business Association? – to help persons in the sector cope with the policy change.
Small-business operators fall into one of three groups by annual revenue: micro – up to $15 million; small – not exceeding $75 million; and medium-sized – up to $425 million.
Compensation practices post changes to the minimum wage law are only one of several topics where knowledge deficits exist. Some banks have recognised this and have developed programmes to engage MSMEs.
Insurance companies, on the other hand, do not appear to be among the early adopters. I see no evidence of sustained attempts by the insurance sector to address the needs of this group. Big information gaps exist in risk-management practices and helping small business operators to understand the important role that insurance plays in trade and commerce.
I wrote in January 2021 that two decades ago, only eight out of 37 businesses (21.6 per cent) that rented shops in the Portmore Mall insured their inventory and other assets. The majority (78.4 per cent) sought a government bailout to recoup their losses when the mall burned down.
Things have not changed much over the years. The same article referred to Three Mile Gully business owners who operated a funeral parlour, two bars, and a cement store. They lost about $10 million in a fire earlier that month. These businesses were uninsured. Recovery prospects, in the absence of insurance, are close to zero.
Meanwhile, the Government has quietly exited the bailout business! This was evident in the aftermath of the SSL fiasco. Former clients do not know if or when they will recover their funds. The administration’s national disaster risk-financing policy – the subject of my June 11, 2023, article – makes it crystal clear that businesses are now expected to use the private-insurance market to help them manage the many risks they face and to recover from untoward events.
Lawyers who read this newspaper on July 10 will understand why the report with the headline ‘UWI Ordered to Pay Millions to Former Student’ provides the context for today’s article. Non-lawyers will not. The report discussed legal liability for a slip-and-fall accident at a tertiary institution; UWI’s legal duty to keep its premises safe (risk management); the increasing trend for injured persons to seek legal remedy; the financial impact of a simple, frequently-occurring accident; and the role of insurance.
This example is about an actual event that explains a knowledge gap that local MSMEs without legal training may overlook. It also offers clues about how these operators may cope more effectively with one set of problems they may face daily.
UWI was ordered by a court to pay $6.8 million in damages for negligence to one of its former students over injuries she suffered from a fall on its premises.
The former student, at the time of her injury, was enrolled at the Norman Manley Law School. It rained on the day the student was injured, and the accident occurred in an open space a few hours after the downpour.
The student did not see any water on the floor before she fell. After she got up, she noticed that her clothing and hands were wet. The student suffered injuries to her cervical and lumbar vertebrae.
She said there was a significant amount of water on the floor. There were no signs around that indicated that there was water on the floor. A UWI representative argued that non-slip tiles were installed in the area and that the area was regularly monitored.
The court apportioned 20 per cent of the blame for the accident to the student and 80 per cent to the University of the West Indies. Without the 80:20 split, UWI would have had to pay the claimant $8.5 million.
Business owners and operators have a legal duty to keep visitors to their premises safe and protect them from harm. Courts will hold businesses and individuals legally liable when they breach that duty and visitors are injured as a result. Courts can order the party at fault to pay multimillion-dollar amounts in compensation.
Some companies and institutions buy third-party or public-liability insurance to protect themselves from claims. The policies can sometimes have limits running into hundreds of millions of dollars.
Without an insurance backstop, the negligent party may have to sell assets to satisfy the claim. MSMEs are often ignorant about the legal environment in which they operate, and as a result, run the risk of not buying coverage to protect themselves and their businesses.
– Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com