Why SMEs Face Risks with Only Mandatory Business Insurance

Small and medium-sized enterprises (SMEs) accounts for over 90% of businesses in Singapore and employ around 70% of the local workforce. With many SMEs relying only on mandatory business insurance, this leaves them dangerously exposed when lawsuits, accidents or business disruptions occur.

Straits Times report highlights that many SMEs in Singapore choose only the minimum insurance required by law. While this may reduce expenses in the short run, it leaves businesses exposed to serious financial and operational risks that could result in costly losses.

The Problem with Relying on Mandatory Coverage

Mandatory business insurance in Singapore includes:

Work Injury Compensation Insurance (WICA): Required under the Work Injury Compensation act, it is mandatory for:
- For employees doing manual work regardless of salary level
- Employees doing non-manual work earning a salary of $2,600 or less per month
Commercial Vehicle Insurance: Required if the business owns commercial vehicles.
Foreign Worker Medical Insurance: Mandatory for all S Pass and Work Permit holders, with a minimum coverage of $60,000 per year.

These mandatory corporate insurance policies provide basic protection, but they are limited in scope. They do not cover lawsuits, property damage, cyber risks or income loss during business disruptions.

Why Relying on Mandatory Coverage is Risky

Many SMEs mistakenly assume the mandatory corporate insurance is sufficient for their businesses. However, risks unique to Singapore’s business environment makes having minimum coverage dangerous:

High Litigation Costs: Singapore has a robust legal system, and lawsuits, whether from clients, employees, or business partners— it can be extremely costly. Without adequate business liability insurance, SMEs may face severe financial strain defending against legal claims.
Business Continuity Concerns: With Singapore being a global business hub, even a short disruptions such as office fires and IT outages can lead to severe revenue loss to the business.
Growing Cyber Threats: With the rapid digitalisation of businesses, Singapore SMEs are becoming prime targets for cyberattacks. Unfortunately, mandatory business insurance excludes such risks, making cyber insurance a crucial safeguard.
Employee Retention Challenges: A lack of robust employee benefits insurance can result in higher staff turnover in today’s competitive workforce, forcing SMEs to spend more on continual hiring and training.

Comprehensive Protection for SMEs

SMEs should consider expanding beyond mandatory coverage to include:

Professional Indemnity Insurance	Safeguards against claims of professional negligence, mistakes or omissions that could result in financial loss for clients.
Public Liability Insurance	Protect your business from claims related to third-party injury or property damage occurring on your premises or due to your operations.
Cyber Insurance	Provides essential protection against the rising threat of cyberattacks, data breaches and digital fraud.
Directors and Officers Insurance	Protects company leaders from personal liability in the event of management-related claims, regulatory investigations or legal disputes.

Conclusion

While mandatory business insurance provides essential protection, but its only the starting point of a well-rounded risk management strategy. SMEs in Singapore rely solely on minimum coverage may expose their business to potentially devasting financial losses.

In today’s fast-changing business landscape, insurance should not be seen as an added expense but as a strategic investment in continuity and long-term growth. The cost of comprehensive protection is minimal compared to the potential impact of unexpected disruptions or liabilities.

If you’re looking for corporate insurance, you can work with insurance broker like eazy to find the best insurance to fit your business’ needs. Alternatively, contact us today for personalised advice tailored to your business’s specific needs and we will be happy to assist you.