Under Penetration of Insurance in the MSME sector in India

Under Penetration of Insurance in the MSME sector in India

While just around 0.9 percent of dwelling units in India are insured, the number in the United States is closer to 90 percent. When a natural catastrophe hits, individuals incur massive economic losses. Unfortunately, Micro, Small and Medium Enterprises (MSMEs) often lack a solid understanding of business risk management.

Businesses were formerly categorised as MSMEs based on their investment in plant and machinery or equipment. However, businesses must keep their investment to a minimum to get the most advantages from the MSME programme. On the other side, these lower limitations are stifling their desire to expand due to their companies’ inability to grow further. Furthermore, there has always been a desire to change MSME categorisation to grow their operations while still receiving MSME advantages.

Core drivers of the economy

SME’s are essential drivers of the Indian economy in terms of both output and employment.

With approximately 70 million units in operation, India has one of the world’s most significant populations of micro, small, and medium-sized enterprises. These MSMEs account for approximately 40% of India’s GDP and employ more than 180 million people in the nation.

According to Statista, the penetration rate of general insurance or non-life insurance in India was 0.9 percent at the end of fiscal year 2019, up from about 0.6 percent in 2009. To build a robust system to address the failures of MSMEs, insurers need to think about recovery in a broader sense.

Vulnerabilities that preceded the pandemic

The containment of the COVID-19 pandemic has impacted small and medium-sized businesses, employers, workers and institutions, putting them out of business. But, unfortunately, business risk management is often not well understood by MSMEs.

According to the 73rd cycle of the National Sample Survey, there are 6.33 million MSMEs in India, the great majority of which are micro-enterprises (approximately 6.3 million micro-enterprises) (2015-2016). However, Indian SMEs lack sound financial management and insurance, exposing them to unexpected events that often cause them to close their doors.

COVID-19 has made it difficult for many SMEs to sustain business continuity. As a result, it is critical to revive these units in the short term, as suggested by the Indian government, and prepare them for a more secure future in the long run.

Supporting the heart that pumps blood to the Indian economy’s nerves

Government support and other initiatives such as technological advances, financial stability and liquidity and market connections should gradually improve the operational environment of MSMEs.

The Insurance Regulatory Authority recommends insuring the property to reduce this risk. But, unfortunately, only 5% of SMEs are insured, putting them at a disadvantage.

Insurance is required for MSMEs borrowing from banks and non-bank financial institutions (NFIs), as these institutions require it as a loan condition. However, as several MSMEs borrow from the informal sector, they are not even covered by basic insurance.

The ultimate goal is to change the perception of insurance among MSMEs. We must assist them in seeing insurance as a critical component of protecting and developing their companies in a planned and organised way so that they can continue to care for their families, workers, and businesses even when times are tough.

Why MSMEs need better insurance

According to the government’s 2018-2019, India currently has 6 08 41 245 MPMEs. These businesses, which a single individual often controls, are particularly vulnerable due to personal risks offered by their owners and family members, which personal risks posed by their employees exacerbate¬†

Only 5% of SMEs are covered, suggesting a significant coverage gap. A large business could collapse under increasing pressure and fail to withstand a disaster. Therefore, reinsurers need to look at the insurance potential of SMEs and MSMEs and help them regain confidence and provide a safety net following a loss. The case study identified policy, management, industry, technology, information, competition, accidents, legal issues, market risks, and criminal activities as the greatest risks.

The global economy’s collapse, a virus sweeping the planet, severe blockages and a sluggish economy have delayed its development to a $5 trillion economy by 2024-2025 by 2020.

Suppose the insurance sector’s reach is extended to encompass these firms. In that case, the insurance industry may see substantial growth while also supporting these small businesses in maintaining their stability and helping MSME recover and become stronger.

To safeguard the future of our customers, we need to simplify the whole customer experience.

These include assessing, purchasing and applying for insurance benefits, all of which must be streamlined. This would help MSMEs secure their future and contribute even more to India’s economic growth in the years ahead.