The biggest learning from these dark times has been that SMEs have finally understood the value of insurance and how it can protect their businesses. Insurance became close to compulsion to provide finance to MSMEs. The demand for insurance has gone up particularly for group health related policies.
India’s non-life insurance penetration is less than 1% of GDP vs world’s close to 3%. MSME’s contribution to the GDP is about 37%, and it is generating employment for over 11 crore people, with 75% male and 25% female. Uttar Pradesh, West Bengal, Tamil Nadu, Maharashtra, Karnataka, Bihar, Andhra Pradesh, Gujarat, Rajasthan, Madhya Pradesh are the top 10 states account for 74% of the estimated number of MSMEs in India.
Though there has been some awareness about insurance post the pandemic, there is still lack of complete understating amongst MSMEs, which is exposing them to risk like health and business interruption. There are around 6.3 crore registered MSMEs across India which require insurance support and it is estimated that only 5% of which are registered. Thus, the market opportunity is close to $ 40 billion.
With the help of right kind of insurance coverage, one can protect their company. The decision should be made keeping in mind various factors like nature of business, employee strength, location and financial capability of the company. There are different kinds of products available in the market to help MSMEs:
- Group medical coverage, which takes care of hospital expenses and other allied expenses for employees
- Covid Specific policies
- Group Personal Accident
- Group Term life
Covers related to health and lives are very important during these times, particularly when the cost of personal health insurance policies is rising due to increased cost on insurers. Other products that are useful to the MSMEs are Sookshma Udyam Suraksha and Laghu Udyam Suraksha, both protecting the property of MSMEs and Workman Compensation.
The biggest hit was felt by the textile, hospitality, auto ancillaries largely due to lockdown, subdued sales and lack of manpower. Policies like Group Medical insurance can act as a wonderful tool for manpower retention.
Crisis management
Crisis in cash flow or a liquidity crunch is one of the main concerns SMEs face while running a business. Every business should have working capital to sustain the functions of the company, pay its employees and grow in the market. Insurance helps in case of unprecedented financial risks and are usually mitigated with insurance coverage. SMEs also have to understand that they are highly dependent on third parties for their supply chain. Thus, any kind of interruption or financial risk related to the third parties can hamper SME’s businesses. Along with these, the risk of natural calamity like flood, earthquake, fire etc can disrupt any establishment. Thus, insurance is the answer to any kind of unseen event in business.
It is important that every company evaluates the need for insurance as per the size of the company and number of employees. Due to the increased awareness, Indian insurers received 22,205 death claims worth Rs 1,644 crore during 2020-21 where the demise was due to COVID-19 against Rs 1,307 crore of premium collected. General and health insurers have, as of June 2021 received over 1.8 million claims amounting to Rs 24,000 crore.
(The writer is National Head – Emerging Corporates, Alliance Insurance Brokers)
