The Importance of Insurance for MSMEs Authored by Mr. Pankaj Verma, Head - Underwriting, SBI General Insurance

The country's economy has been greatly benefited by the Micro, Small & Medium Enterprises (MSMEs), which also functions as a strong foundation for entrepreneurial innovation. The MSME ministry estimates that there are around 6.3 crore MSMEs in India, which employ around 11.10 crore Indians and contribute about 27% of the nation's GDP. It's important to note that the Micro sector makes up more than 99% of MSMEs, while the Small & Medium segment makes up less than 1% of the total MSME population.

MSMEs require a bare minimum protection plan for managing the risks, in contrast to large or multinational companies that are supported by comparatively deeper pockets. The need to strengthen the MSME sector and establish techniques and measures to prevent risks like fire, theft, and reinforce worker safety was also reemphasized in the Union Budget for FY22-23.

The majority of these MSMEs often involve promotors who have used their life savings or borrowed funds to launch new businesses. Most of these MSME units are prone to various risks that jeopardise their business purpose. Insurance protects against unforeseen events and helps to lessen adverse effects on the MSME's long-term business plan, supporting the viability and longevity of the business.

MSMEs must assess their risks, understand them, and choose the right insurance coverage depending on the nature of their operations and the value of their assets. Due to perceived low probability of certain risks and threats, these businesses may choose to maintain inadequate or no insurance in order to save money on premiums. However, when faced with difficulties, the harm is done, and the risks taken end up being far larger. To prevent being underinsured, MSMEs must select the appropriate insurance coverage. The budget designated for insurance and risk management strategies develops along with the company.

The type of insurance protection plan that an MSME unit requires should be decided upon considering various factors like the nature of the business, the strength of the workforce, and the company's financial position, among other factors.

Some of the key products that MSMEs could opt for are:

The recently developed asset insurance products from the insurance regulator (IRDAI) for the MSME sector are the Bharat Sookshma Udyam Suraksha for MSME units with value at risk up to Rs. 5 Crore and the Bharat Laghu Udyam Suraksha for units with value at risk above Rs. 5 Crore. In addition to other threats, these products safeguard MSME against fire, flood, and earthquakes.

Trade Credit Insurance that protects the enterprise from payment risks resulting from an issue regarding delivery of goods and services 

In the current environment, adequate cyber insurance coverage is very essential and can be the ideal risk-reduction tool against all types of cyberthreats.

Marine cargo insurance offers extensive coverage for loss or damage to the cargo when it is being transported between any two locations by sea, air, rail, road, or courier.

Group Medical coverage policy for the employees of the MSME thereby building employee loyalty and faith by promoting a cohesive, healthy working environment

In addition to this, there are several more insurance coverages like liability insurance, motor insurance, etc. that cover various aspects based on the type of business an MSME firm runs.

Although there is an improvement in insurance awareness, MSMEs are just now beginning to realise the value and significance of insurance as a risk mitigation measure since it is sometimes the only thing that can save them when adversity strikes, and the pandemic has made this clearer than ever.