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Why insurance is important for small businesses For small, low-margin businesses, insurance is not just an added cost, but an essential guarantee of business continuity.
“trade Credit Insurance: Safeguarding European Businesses”
In the event of a natural or economic disaster, the economic losses incurred by MSMEs far exceed insurance losses, making them more vulnerable; image credit: freepik
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Although it employs 40% of India’s workforce and accounts for 45% of India’s total industrial output, less than 5% of India’s SMEs are insured. Insurance plays an important role in mitigating the risks faced by this sector which is called the backbone of the Indian economy. With the government’s target to increase the export share of the sector from 49% to 60% and five million additional jobs in the sector by 2025, the need for adoption of insurance in this sector has become more important. .
“It is vital for small businesses and start-ups to have business insurance that can provide financial protection against financial loss and help ensure smooth business continuity. Although different organizations have different risk tolerances and different payment capabilities, we agree that insurance is a must. We have it for all types and sizes of businesses,” says Sajja Praveen Chowdary, Head of Policybazaar for Business.
In the event of a natural or economic disaster, the economic losses suffered by MSMEs far exceed insurable losses, making them more vulnerable, while large companies can cushion any setbacks through their best risk practices and larger cash reserves.
“Unlike large companies, which often have a financial reserve to cover unexpected losses, MSMEs operate with lower profit margins and are more susceptible to uncertainty. Insurance is not just an additional cost, but an essential guarantee for the continuity of operations of MSMEs What differs from wide Their risk profile may be lower, but the relative impact may be much more negative, requiring dedicated coverage,” says Sanjeev Mantri, ED, ICICI Lombard.
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According to key people in the insurance industry, there are several reasons SMEs may not purchase insurance, including a lack of understanding of the types of risks to their business. “There is a lack of awareness of how certain affordable insurance solutions can protect various aspects of the business. There is also an unrealistic optimism about the situation, even though the risks are very real. not prioritize insurance as a solution over other aspects of running a business unless it is a compliance requirement,” adds Chowdary.
Ajay Kumar Tripathi, chairman and appointed actuary of Aviva India, says voluntary adoption is still not ubiquitous as “insurance is petitioned”. “Many small and medium business owners are unaware of the different types of insurance and coverage available to protect their businesses, assets and employees. With limited financial resources, even small businesses see insurance as a cost. extra beyond their means.This perception prevents them from seeking insurance.
“While the main reason is lack of product awareness and benefits, affordability is also a reason due to low margins,” says Pranay Shah, Executive Vice President and Country Head, SME, Tata AIG Insurance. I don’t feel the need to purchase insurance due to my lack of awareness of accidents that have caused misery to others. Sometimes a lack of understanding of the cover leads to distrust.”
According to Mantri, the distribution of insurance products has traditionally been insufficient, making it difficult for small and medium-sized businesses to access policies. Moreover, the insurance products available often do not take into account the specific risks and needs of MSMEs. This may prevent them from investing in insurance.
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There are many insurance products for SMEs in the market offered by insurers such as Tata AIG, Aviva India, Bajaj Allianz and ICICI Lombard. The guaranteed amount of liability products depends on the nature of the business and the type of business, and when insuring workers, the company must also disclose the number of employees and their salary.
All Risk Civil Liability Insurance: This policy protects the company against any claim involving bodily injury to third parties or property damage resulting from its products or services. If a lawsuit is brought against the company for damage suffered by a third party, all costs of investigators and lawyers are borne by the insurance company.
Directors’ and Officers’ Liability Insurance: Under this insurance policy, the insurer will indemnify any loss or damage arising from the actions of the directors and officers while employed. Bharat Lago Udiyam Suraksha Policy: It is designed to cover the ownership of the store and all its contents. The policy is valid for the sum insured above INR 5 million to INR 50 million. It was introduced by the Insurance Regulatory and Development Authority of India (IRDAI) in April 2021. This policy ensures that the insured property is covered against unforeseen loss/damage and unforeseen expenses.
Business interruption insurance: If your business has to leave its premises due to damage caused by an accident, this insurance protects against loss of income. The policy also covers operational expenses, such as electricity, which continue even after the business ceases. Companies like Future Generali offer this.
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Insurance against accidents at work: Accidents at work are inevitable despite the prevention and safety measures taken. A workers’ compensation policy allows an employer to compensate employees or their families for death or bodily injury (permanent partial disability/permanent total disability/temporary disability) resulting from workplace accidents (some of which professional diseases) . Everyone should have this hat.
Electronic Insurance: Covers business losses and liabilities resulting from a computer security breach. The policy provides comprehensive insurance protection for your business against electronic or digital risks that could result in financial loss for the insured and loss of reputation for a third party due to hacking of the insured’s systems.
Marine Insurance: Provides coverage against loss or damage to goods or merchandise in transit between points of origin and final destination. It also covers all modes of transport such as road, rail, air, sea, courier and postal services. In addition to the insurance policies mentioned above, there are policies such as group health policies and group accident insurance policies for small and medium-sized businesses.
In order to improve the penetration of insurance in the growth engine of the country, insurers are also gradually innovating in their solutions. “We recently strengthened our commitment to helping businesses meet all of their insurance needs and launched “Policybazaar for Business”. Our business insurance business is bolstered by industry-leading technology, robust processes and a team of industry experts to meet the needs of large enterprises, SMEs and tech and non-tech start-ups,” adds Chowdary.
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On the other hand, Tata AIG has revised its main “real estate package” to make it more comprehensive by including other sections in the package, with more flexibility for policyholders in terms of coverage and additional coverages granted for certain positions. “The new product also addresses key concerns that small businesses are wary of, including inadequate application of insurance and inconsistencies in the nature of activities covered,” Shah adds.
Insurers also make it easy to settle claims: “We address the major pain points of a complex shopping experience and settle stressful/delayed claims with end-to-end transactions in seconds. This is properly supported by easy access and a level playing field in claims settlements have launched a service, which is the first of its kind and enables faster claims settlement. Using artificial intelligence and big data analysis, ICICI Lombard offers claims settlement property and marine claims accepted up to INR 5 lakh within 10 working days – ensuring fast and smooth claims,” adds Mantri.
“We recognize that new SMEs – even if they are not risk averse – may not be fully aware of the risks. Therefore, it is our duty to educate them on risk management and let them know what potential risks they face and how they can insure themselves to mitigate them. In doing so, we can contribute to a significant increase in the uptake of insurance by MSMEs,” adds Shah.
According to Shah, multi-year policies can also help improve penetration. “If permitted, it will reduce non-renewal of insurance policies and reduce distribution costs. information was available to insurance companies so that SMEs could provide adequate cover.”
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The industry believes that despite the very low penetration of insurance in the SME sector, there have been clear changes as a result of the COVID-19 pandemic. Dedicated funds are needed to manage it,” says Chowdary.
“With cyberattacks happening around the world and the unprecedented way these attacks are happening, businesses (especially technology-based ones) are increasingly prepared to protect themselves against such threats. Natural disasters in the recent past have also caused global anger.
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