QBE report reveals emerging challenges for Singapore SMEs

QBE Insurance released findings from its annual SME surveys conducted in Singapore and Hong Kong, highlighting the distinctive challenges faced by small and medium-sized enterprises (SMEs) in both regions and their approaches towards artificial intelligence (AI) impact, cyber risks, and purchasing channels.

In Singapore, increased costs and reduced profitability remain significant challenges for SMEs, with two-thirds of respondents identifying them as their principal concerns. Financial difficulties, notably reduced customer spending and cash flow issues, are also on the rise, as noted by over half of the participants.

The economic outlook in Singapore is less optimistic compared to the previous year. Only 52% of the surveyed SMEs believe that 2025 will be economically better than the past year, a decline from 60% in the prior survey. There is widespread concern about the impact of rising operating costs and inflation, with a notable portion of executives expressing doubt regarding improved sales prospects in the coming year.

Shun Quan Goh, Head of Underwriting for Retail & SME at QBE Singapore, commented, "While there is much concern over the state of the economy and their own prospects in the future, businesses aren't standing still. The proportion of respondents taking action to tackle today's conditions has increased."

AI is being increasingly adopted by Singapore SMEs, with 52% recognizing its significant impact on productivity. However, concerns about associated risks are growing, with 34% of respondents seeing it as a threat compared to 30% the previous year. Notably, privacy and security breaches are emerging as significant worries within the sector.

Despite the rise in cyber events, awareness of cyber risks among Singapore SMEs has declined to 40% from 47%. Insurance coverage for cyber risks remains low, with a slight drop in uptake from 38% to 36%. Mr. Goh noted, "While local SMEs are aware of their knowledge gap on cyber risks, they are still not compelled to purchase insurance, on the basis of cost control."

On the purchasing preferences front, a mix of offline and online channels continues to be favoured, with 65% of businesses preferring offline transactions. However, there is a modest increase in direct online engagements, illustrating a nuanced shift in purchasing habits.

Ronak Shah, CEO of QBE Singapore, observed, "Businesses that are able to successfully upskill their current workforces will reap the many rewards the technology offers now and in the future. The proliferation of AI is not about replacing people with machines, but rather, about adapting our workforces to meet this new paradigm."

In Hong Kong, almost 60% of SMEs reported challenges related to increased costs and reduced profitability. Cash flow and funding access remain problematic for about half of the respondents. Despite these challenges, there is a resilient adaptation with the implementation of strategic measures to counter economic pressures.

"Despite today's difficult conditions, businesses are rising to the challenge," said Andex Fung, Head of SME Segment, Asia at QBE.

As in Singapore, AI is recognised for its positive influence on productivity by 57% of Hong Kong SMEs, though concerns about its risks, notably privacy and employment implications, have concurrently risen.

Hong Kong SMEs are improving their awareness of cyber risks, and there is an increase in the purchase of cyber insurance from 39% to 43%. Mr. Fung remarked, "It's heartening to see Hong Kong SMEs heighten both their knowledge as well as protection measures against cyber-attacks."

Hong Kong shows a notable trend towards offline insurance purchasing, with 68% of SMEs favouring these channels, marking a shift from 57% the previous year. This preference indicates a move towards a more personalised buying experience, in line with suggestions from Ms. Yu, CEO for North Asia.