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SME Insurance CoverInadequate SaysPEDF Review
A major PEDF review of insurance inthe island nations of the
Pacific hasfound that many SME operators aremissing out on
lucrative contractsand placing their businesses atsignificant risk
because they don’tfully understand the need foradequate cover.
The review, which looked at Fiji, Papua NewGuinea, Samoa,
Solomon Islands andVanuatu, also found that access to
insurancecover is limited in some parts of the Pacific, atleast in
part because providers arediscouraged by the size of the market and
theregion’s vulnerability to natural disasters aswell as social and
political instability.
Premiums paid in the Pacific amount to just 0.01percent of the
total global insurance market.
Recommendations flowing from the PEDFreview conducted by
consultant, Ian Graves,focus on overcoming “the lack of knowledgeof
risk and insurance by indigenous SMEoperators, along with the
consequent under-insurance and poor risk management”.
“We decided to look at insurance in theregion when we found that
local businesseson the Papua New Guinea islands of Buka
andBougainville were missing out on contractswith aid agencies and
multinationalcompanies because they were under insuredor had no
insurance at all,” said the PEDF’sPhilip Olsen. “Many SMEs don’t
understandthat insurance is an essential and on goingbusiness
overhead.”
More importantly, insurance, or the lack of it,also impacts on
an SME’s ability to obtain loanfunding for growth and to recover
fromunexpected incidences such as fire and theft.
“Some businesses are being refused coverbecause they were
unaware during theestablishment phase of the constructionstandards
required by insurance companies,”Mr Olsen said. “For example,
tourist operatorsmay not understand that a minimum distanceis
required between accommodation buildingsin order to reduce the risk
of fire and to qualifyfor insurance coverage.”
According to the PEDF review, many loanproviders in the region
are also leavingthemselves vulnerable by requiring SMEs toonly
insure certain assets rather than basingrisk assessments on the
viability and “totalmanagement of the business”.
In his final report, Mr Graves recommends thatall business
skills programs cover insurance,including risk assessment and loss
control.Banks and other lending institutions, he says,ought to
ensure that SMEs have access toprofessional insurance advice aimed
atmeeting their client’s needs rather than merelyprotecting their
loan. He also believes thatnational or development banks should
beencouraged to provide premium fundingfacilities for indigenous
SMEs so as to reducethe burden of ongoing premium payments.
The insurance industry, Mr Graves says, shouldplace greater
emphasis on the training ofindigenous insurance agents who
couldeducate SME operators, provide access toinsurance cover and
grow the region’sinsurance industry. The training of agents,
headds, would also create new businessopportunities within the
industry.
PEDF is currently developing a strategy for theimplementation of
these and otherrecommendations which will involve
insurancecompanies, lending institutions and SMEsthroughout the
region. �
SECOND QUARTER 2006
Pacific Enterprise Development Facility
The Pacific EnterpriseDevelopment Facility
Co-financed by
Australia
International Finance Corporation
Japan
New Zealand
Managed by
International Finance Corporation, amember of The World Bank
Group
The Pacific Enterprise DevelopmentFacility (PEDF) was
established in1990. The primary activity of PEDF isto facilitate
and support best practicein the design and delivery of
businesssupport services to the private sectorin the Pacific region
with a particularfocus on small to medium enterprises.PEDF works
with institutions,organisations and associations oncapacity
building and strengthening ina wide range of areas from
businessadvisory through sector specific tofinancial markets.
PEDF works in Federated States ofMicronesia, Fiji, Kiribati,
MarshallIslands, Palau, Papua New Guinea,Samoa, Solomon Islands,
Tonga,Timor-Leste and Vanuatu.
PEDF - ‘Helping Build Better Business’
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Worldhotel-link.com (WHL) is an IFCinitiative which began with
awebsite listing nine guesthouses inthe Cambodian town of Siem
Reapand now covers hundreds of smallhotels in developing
countriesfrom St Kitts & Nevis in theCaribbean to Fiji, Vanuatu
andSamoa in the Pacific.
“The beauty of this product is thatit provides first world
technologyto the developing nations of thePacific,” says the PEDF’s
tourismsector specialist, John Perrottet.
“These hotels now have a globally competitive reservations
systemwhich allows them to capitalise on the rapidly
expandingindependent traveler market.”
Put simply, this unique hotel information and booking system is
anetwork of country specific websites maintained by local
operatorsunder a franchise agreement with WHL which was established
bythe IFC. While the sites use IFC developed technology and
areconsistent worldwide, the hotel information carried on each
isgathered locally by the franchisee who takes a commission
onbookings and is free to sell local advertising.
The Samoan site generated more than a quarter of a million
Tala(approximately ninety thousand US dollars) of hotel business in
itsfirst nine months while the PEDF says that those in Fiji and
Vanuatu
are on target to become self sustaining within 12 months.
TheFacility nevertheless, recognises that the start up phase can
beexpensive and is prepared to provide assistance to new
franchisees.
The network, according to WHL, “connects travelers
andaccommodation providers via locally-owned and operated
e-marketplaces”. The WHL e-marketplaces, it says, “are advanced
e-commerce enabled accommodation booking sites, sharing acommon
database-driven booking system”.
“All websites have the same look and feel, creating a community
ofsites which is at once familiar to travelers and trusted by
them,”adds WHL.
In addition to providing independent travelers with information
andreal-time reservations through a network of sites, WHL is able
to setand monitor quality and performance standards for individual
hotelsand compare results across the world. “For example, if hotels
in theCzech Republic are not doing as well as those in the Pacific,
we cananalyse the problems and move quickly through the network to
helpresolve them,” Mr Perrottet said.
Importantly, Mr Perrottet points out that WHL’s Pacific sites
are crosslinked to those of discount airlines now operating
services to andfrom Vanuatu, Fiji and Samoa. “With the introduction
of discountairlines, there are many more independent travelers in
the Pacificwho want to make their own arrangements.” he said.
“There is avery natural marriage between these airlines and WHL
hotels.”
Timor-Leste may soon be added to the growing list of
Asia/Pacific sites. �
PEDF - Bringing Pacific Hotels and the World Traveler TogetherOn
the surface of it, the Samoan capital of Apia, the southern Indian
state of Kerala and the Lao town of Paksewould seem to have little
in common. But they do share a need for tourist dollars and are now
linked via a singlecyber network that could have a profound impact
on their tourism industries.
John Perrottet
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PROJECT NEWS
During the final quarter of 2005, PEDF was activelyengaged in
sectors ranging from SME insurance to foodexporting. But the
Facility’s primary focus was ontraining in the finance sector.
In recent years, PEDF has helped government supporteddevelopment
banks in Fiji, Papua New Guinea and Palau to improvetheir
structures, processes and procedures for the benefit of localSMEs.
Aware that the successful implementation of these changesdepended
to a large extent on well qualified staff, the Facility hasbeen
instrumental in a number of training programs.
In December 2004, PEDF completed an eight phase
“ChangeManagement Implementation Program” for the Fiji
DevelopmentBank (FDB), which resulted in a reorganisation of the
Bank. As aresult of the program, key divisions were restructured,
non-performing loans dramatically reduced and new risk
managementsystems put in place. An all important Agriculture and
DevelopmentFinance Division was also created and business plans and
pipelinetargets set for each of the Bank’s business managers.
During thepast quarter, PEDF continued to work with the FDB and
completedan additional three stage project. The project involved
PEDFdeveloping and executing a strategic plan, the result of which
is toenable FDB to secure a Fiji Reserve Bank approved licence to
takedeposits.
In Papua New Guinea, PEDF assisted the country’s largest Bank,
BankSouth Pacific (BSP), to implement a wide ranging training
programcovering employees in Port Moresby, Lae and other centres
along thecountry’s north coast, in the Highlands and on outer
islands. Thetraining followed the successful implementation of a
four stageproject aimed at upgrading BSP’s Credit Scoring System.
The purposeof the Credit Scoring System is to enhance the handling
of creditapplication processes, through improved consistency and
greateraccuracy, without significantly increasing the resources
required.
“The credit scoring program has been a real success story for
BSPand the training program was integral to the Bank’s ability to
providesmall scale credit throughout the country,” said the PEDF’s
RobSimms.
The National Development Bank of Palau’s Credit
Enhancementproject was designed to update the Bank’s credit
procedures and toproduce a customised Credit Policy and an improved
ProceduresManual. Once completed, PEDF implemented an intensive
stafftraining and up skilling program to ensure the success of the
initialproject. The training consisted of one on one coaching and
formalgroup training.
Credit Unions or Savings and Loan Societies are well suited to
theneeds of low income earners and SMEs in the Pacific and
arepopular throughout the region. Given their size and
uniqueprocedures, it has often been difficult for these
institutions toacquire appropriate accounting software and computer
hardware.
During the quarter, PEDF assisted the Vanuatu based
MelanesianCooperative Savings and Loan Society to evaluate its
computerrequirements and recommended low cost customer and
generalledger Microfinance Institution (MFI) software options
including thecomputerisation of MFI records and management
reporting.
Also during the quarter, PEDF completed a similar project for
theAGLOW Microfinance Unit in Fiji.
Captain William Bligh failed to successfully ship breadfruit
fromTahiti to the Caribbean in 1789 and the Pacific Island staple
is stillchallenging exporters with a range of handling and
packagingproblems.
PEDF has now completed stage 4 of a 5 stage project aimed
atimproving the export marketability of breadfruit from Fiji to
NewZealand which has a large Pacific Island community.
This stage reassessed the current export handling activities
anddeveloped two presentations for the Fiji Breadfruit
IndustryConference. The primary purpose of the Conference was to
bringtogether representatives of the major stakeholder groups for
thepresentation of the newly developed Breadfruit Handling
Manualand associated Breadfruit Export Standards. �
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Pacific Enterprise Development Facility Quarterly Second Quarter
2006
The Pacific EnterpriseDevelopment Facility
For further information contactLevel 18, 14 Martin PlaceCML
BuildingSydney NSW 2000
Phone 61 2 9223 7773
Fax 61 2 9223 2533
Email [email protected]
General Manager
Mary Elizabeth Ward
Operational Staff
Robert Simms
John Perrottet
Philip Olsen
Peter Cusack
Administration Staff
Cathy St Ledger
Arist Caruana
Aphrodite Ioannou
Jane Bleakley
Suzanne Harvey
Nga Trinh
FIAS - SupportingForeign Investment inthe Pacific
Unlike many outsiders, the Sydney basedstaff working with The
World Bank Group’sForeign Investment Advisory Service
(FIAS)understand that the individual island nationsof the Pacific
are unique. “We are proud ofthe fact that we are able to
recognisedifferences at the country level and are ableto tailor our
approach accordingly,” saysLead Economist, Russell Muir.
FIAS is also aware that like developingeconomies the world over,
the Pacific Islands arehungry for direct foreign investment able to
liftproductivity, promote foreign trade, transferskills, benefit
domestic investors, drive economicgrowth and, importantly, create
jobs.
Since 1985, FIAS has provided 130 governmentsaround the world
with expert advice on thepolicy and regulatory reform that lead to
whatRussell Muir calls an “improved businessenvironment”.
The Service established its Sydney office in 1995and has spent
much of the past decadeencouraging Pacific nations to individually
andcollectively improve their approach to foreigninvestment
promotion. “We have been assistinginvestment promotion agencies in
the region tobecome more efficient, training them in the
latesttechniques and technologies and helping them towork with both
domestic and foreign investors tobring in new investment,” Mr Muir
said.
Another high priority area has been the
sometimes cumbersome business registrationprocesses that operate
in many of the Pacific’sisland nations. FIAS has recently worked
withthe governments of Fiji, Tonga and SolomonIslands on programs
aimed at simplifying theprocesses and procedures in an effort to
make iteasier to establish or expand a wealthgenerating
business.
Despite their demonstrated expertise in privateenterprise
oriented reform, FIAS is quick toacknowledge that, when it comes to
assistance,governments are best able to assess their needs.“We act
only on request from a nationalgovernment and only after terms of
referencehave been agreed,” Mr Muir said.
The FIAS approach to reform, he adds, is also aninclusive one.
“For example, if we were talkingabout business regulations, we
listen very closelyto the views of the private sector, chambers
ofcommerce and trade unions as well asgovernment as we analyse the
problems andwork towards a solution to those problems.”
Despite the tyranny of distance from majormarkets, another
challenge shared by Pacificcountries, Mr Muir says that the
region’s islandnations can attract direct foreign investmentwhich
in someway takes advantage of thenatural and human resources they
have to offer.
“A good example is Fiji where companies havetaken advantage of
location and relativelyinexpensive labour rates to
manufacturegarments and footwear.” FIAS worked with theFijian
government to develop a system whichallowed for the duty free
import of raw materialswhich would ultimately be exported
ascompleted products.
“A very successful import - export scheme hasnow been operating
in Fiji for quite a longtime,” Mr Muir concluded. �
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