MSMEs run on promoter’s savings and need insurance as much as other businesses

MSMEs run on promoter’s savings and need insurance as much as other businesses
Anand Pejawar, Deputy Managing Director at SBI General Insurance
The Micro, Small & Medium Enterprises (MSMEs) have been contributing significantly to the country’s economy and serve as a robust platform for business innovation. According to the MSME ministry data, there are about 6.3 crore MSMEs in India, which provide employment to approximately 11.10 crore Indians and contribute to about 27% to the country's GDP. It is important to note that the micro segment is more than 99% of the MSME population, while the Small & Medium segment is less than 1% of the MSME universe.

Compared to large or multinational firms backed by relatively deeper pockets, MSMEs require a bare minimum protection plan for managing the risks. The Union Budget FY22-23 also re-emphasised the need to make the MSME sector more robust and provide ways and means to mitigate the risks such as fire, theft, or worker safety. Most of these MSMEs often are business ventures where the promoter has invested their lifetime savings or borrowed money to start a new business.

Given their small size and scale of operations, most of these MSME units are prone to risks that threaten their overall business objective – something that they put in years to scale up. Insurance offers protection from sudden shocks and uncertainties and helps mitigate adverse effects on the long-term business plan of the MSME, thus ensuring longevity and sustenance of the business.

Why do MSMEs need to insure their business?

MSMEs should understand and evaluate their risks and identify the optimal size of insurance covers based on their business activity and asset size. The probability of certain threats and perils might seem low and to save premiums these firms might remain underinsured or even uninsured.


However, in the face of adversities, the damage caused and the stakes lost end up being much higher. MSMEs must pick the right insurance plan to avoid being underinsured. As the business grows, so does the allocated budget for insurance and risk mitigation measures.

The decision on which kind of insurance protection plan an MSME unit needs must be made bearing certain factors in mind – nature of business, employee strength, and financial capability of the company, among others.

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

1. Bharat Sookshma Udyam Suraksha & Bharat Laghu Udyam Suraksha
  • This is the newly devised asset insurance products for MSME sector from insurance regulator (IRDAI) and effective from April 1, 2021. These products protect MSME from fire, flood, and earthquakes among other perils. There are two schemes under this
  • Bharat Sookshma Udyam Suraksha, which is for MSME units having value at risk up to ₹5 crores
  • Bharat Laghu Udyam Suraksha for units having value at risk above ₹5 crore.
2. Trade Credit InsuranceThis protects the enterprise from payment risks resulting from an issue regarding delivery of goods and services.

3. Cyber Insurance coverage
Adequate cyber insurance coverage is a must in today’s environment and can be the perfect risk mitigating tool against cyber threats of all kinds.

4. Marine Cargo Insurance
Provides wide coverage for loss or damage caused to the cargo whilst in transit between any two points by sea/air/rail/road/courier.

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

Besides these, there are numerous other insurance covers like Liability Insurance, Motor Insurance, etc. that cover multiple aspects depending on the nature of business of an MSME business

While there is a rise in awareness about insurance, MSMEs are gradually understanding the importance of insurance as a risk mitigation tool because that is often the only saviour that helps them get back on their feet as quickly as possible, when adversity strikes, and the pandemic has made this more evident than ever before.

This article is authored by Anand Pejawar, Deputy Managing Director at SBI General Insurance. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India.